Triple Squeeze: Tariffs, Fuel Costs, and Rates Pressure US Businesses

A combination of tariffs under President Donald Trump’s trade policies, surging fuel costs linked to the Iran conflict, and increasing interest rates is forcing American businesses to make difficult financial decisions. This convergence of economic pressures is impacting companies across manufacturing, transportation, and retail sectors.

Allen Eden, owner of Original Saw Co. in Britt, Iowa, has been stockpiling inventory to manage spiking prices for materials like aluminum, steel, and essential components. He noted that the cost of a single bracket for his saw motors more than doubled this summer, rising from $42 to $87. “It’s awful,” Eden told CNBC. “I’m just trying to keep more of the stuff around because I don’t know if we can get it down the road.”

This represents a “three-way squeeze” for businesses: tariffs raise the cost of raw materials, higher fuel prices increase manufacturing and logistics expenses, and rising interest rates make financing inventory and equipment more costly. Middle-market manufacturers are particularly vulnerable, as they must often pass increased expenses onto consumers, thereby contributing to persistent inflation.

The Federal Reserve recently raised interest rates for the first time in three years, with further hikes possible this year. Record diesel prices, driven by the Iran war and the conflict in Ukraine, are additionally straining trucking and logistics firms.

Smaller companies often bear a heavier burden due to their reliance on short-term lending, according to Dubravko Lakos-Bujas, global strategy head at JPMorgan Chase. Capital-intensive sectors such as manufacturing, equipment supply, and commercial real estate also face heightened risks in a rising rate environment.

Mark Costa, CEO of Eastman Chemical, described the industry as being “back against the wall” with no room to absorb the dual pressure of interest rates and inflation. He reported that price increases are happening faster than he has seen in 20 years.

In the automotive sector, the impact is stark. Lucerne International, a Detroit-area auto parts maker, halted U.S. manufacturing operations and canceled a $50 million aluminum forging plant in Michigan due to tariff-related supply chain disruptions and rising material costs. CEO Mary Buchzeiger stated that Trump tariffs have created significant holes in global supply chains.

Paul McCarthy, CEO of the vehicle supplier trade association MEMA, acknowledged that margin pressure is widespread, forcing some costs to be passed on. Profitability among the top 100 auto suppliers fell to 4.2% last year, down from over 6% in 2021, while the top 10 automakers saw their earnings before interest and taxes drop to 5.2% from nearly 8% in 2022.

Spanish parts maker Grupo Antolin filed for Chapter 15 bankruptcy protection in the U.S. in July, citing tariffs, higher raw material and energy costs, and supply chain issues.

Conversely, large corporate giants, particularly in tech and finance, remain better positioned due to substantial cash reserves and long-term debt structures. However, risks persist. United Airlines CFO Mike Leskinen noted that while consumer demand remains resilient, the airline has cut marginal routes that are no longer viable in a high-fuel-cost environment.

EY-Parthenon chief economist Gregory Daco warned that while the economy is resilient, growing pockets of risk exist. He cautioned that raising interest rates may not address the root causes of inflation, such as geopolitical conflicts and the AI-driven demand for energy and materials, potentially slowing the economy too much or destabilizing the stock market.