What’s driving increasing CEO pessimism? Tariffs and trade

For CEOs of small and midsize businesses, the on-again, off-again tariffs are a source of increasing pessimism about the year ahead, and the threat of reciprocal tariffs and trade policies only adds to the uncertainty.

Early analysis of the Q1 2025 Vistage CEO Confidence Index survey shows that 42% of CEOs expect the economy will worsen in the year ahead. This proportion has doubled since Q1 2024 and a significant increase from 13% last quarter.

Changing tariff and trade policies are a primary driver of economic pessimism, as 69% of CEO report that changing tariffs and trade policies will have a negative impact on their business. Many CEOs see tariffs as inflationary, increasing costs for both businesses and consumers. Certainly, specific industries such as manufacturing, construction and businesses engaged in international trade see more direct impacts, such as eroded profitability, decreased margins and challenges in their supply chain.

Dusting off the ‘tariffs playbook’

The playbook for how small and midsize businesses deal with tariffs has not changed. Those who have dealt with shifting tariffs and trade policies might recall the challenges they faced in 2018.

The key actions include:

1. Conserve cash

Tariffs can increase costs unpredictably, so maintaining liquidity is critical. Leaders should:

• Delay non-essential expenditures to ensure cash reserves are available for potential cost increases.
• Strengthen cash flow management by optimizing accounts receivable and payable cycles.
• Consider alternative financing options like lines of credit or supply chain financing to manage short-term tariff-related expenses.

2. Build inventory

If tariffs are expected to rise, proactive inventory management can mitigate cost spikes. Strategies include:

• Stockpiling key materials or products before tariff hikes take effect, particularly if they have long lead times.
• Assessing storage capacity and carrying costs to avoid excessive inventory costs.
• Identifying alternative sourcing options in case supply becomes constrained or prices escalate too sharply.

3. Revisit pricing strategy

Tariffs can erode margins, making it essential to reassess pricing models. Steps include:

• Passing costs to customers strategically while maintaining competitiveness. This may involve incremental price increases or tiered pricing models.
• Exploring value-added offerings to justify price adjustments without losing customers.
• Negotiating better terms with suppliers to share the tariff burden.

4. Engage in cost-saving measures

Cost efficiency is a crucial buffer against tariff-induced price hikes. CEOs should:

• Identify and eliminate inefficiencies in operations, such as waste reduction in production or streamlining logistics.
• Invest in automation and technology to enhance productivity and reduce reliance on expensive imports.
• Review discretionary spending and focus resources on high-impact areas.

5. Evaluate supply chain

Diversifying supply sources can help reduce tariff exposure. Key actions include:

• Assessing supplier risk and identifying alternative, non-tariff-affected suppliers.
• Considering nearshoring or reshoring to reduce reliance on international suppliers.
• Negotiating long-term contracts to lock in prices before tariffs take effect.

By proactively addressing these areas, SMB CEOs can better navigate tariff challenges, minimize financial strain and maintain business resilience. While these steps can address tariffs as a symptom, they do not address the root cause: uncertainty.

Tariffs and trade: Implications of uncertainty

It seems like uncertainty has become a regular descriptor of current events, and specifically the economy. Same challenge, but a new flavor. There are downstream effects of uncertainty, which are reflected in our data:

• Personnel impacts: Not only are fewer CEOs planning to increase their workforce compared to last quarter, but the number of those who plan to reduce personnel rose 9 points to 14%. This is a notable change and also the largest proportion since the pandemic-related shutdown and otherwise not recorded since the 2008-2009 recession.
• Profitability impacts: Stemming from increased pricing pressures caused by supply chain disruptions and tariffs, the proportion of CEOs expecting decreased profits has more than doubled from last quarter, reaching 23% from last quarter’s 10%.
• Price increases: A common aspect of the playbook is passing on increased costs by raising prices. More than half (51%) of CEOs plan to raise prices in the next 3 months, and others are evaluating their pricing strategy, waiting to see the impacts of specific tariffs as well as if and when reciprocal tariffs might be implemented.
• Slower growth expectations: Growth appears to be slowing, especially in key sectors like manufacturing, construction and health care. While 58% of CEOs expect increased revenues in the year ahead, that is a steep decline from 76% last month. If consumer demand continues to weaken, that will raise recessionary concerns.

Rising costs, rising prices

More than half (51%) of CEOs plan to raise prices in the next 3 months, according to data from the Q1 2025 CEO Confidence Index survey. Among those intending to increase prices, only 16% plan increases between 1% to 3%, which aligns with the latest reported inflation rate of 2.8%. The most common is price increases between 4% and 6%, with 40% of CEOs expecting to raise prices in that range. Additionally, 39% plan to increase prices by more than 7%, including 26% who intend to raise prices by 7% to 10% and 13% who anticipate increases greater than 10%.

CEOs do recognize that their price increases contribute to the cycle of inflation. To mitigate that, another way CEOs are addressing increased costs is to implement a tariff surcharge. This creates a specific line item for tariff costs, which can be adjusted as needed. This not only enables transparency with customers but also builds flexibility while protecting margins.

Look for a full analysis of the Q1 2025 Vistage CEO Confidence Index survey published in early April. This analysis will dive deeper into changing confidence and how small and midsize businesses are adjusting pricing strategies to deal with changing tariffs and trade policies. It will also compare data from other leading indicators, helping CEOs gain some clarity around what is forecasted for the remainder of the year.

Related Resources

The CEO Pulse: Tariffs Resource Center

Tangling with tariffs in 2025: CEOs share their strategies

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