By Brooke Thomson
President & CEO

Tariffs have begun to exact a toll on Massachusetts businesses and consumers.

The US yesterday imposed tariffs on more than 90 countries just as signs of economic pressure began to appear both in Massachusetts and the rest of the nation. Now that the time of companies pre-planning and pre-buying is over, the economic drag of tariffs is unmistakable.

Analysts have calculated that the average effective tariff rate imposed on all goods being imported into the U.S. is now more than 18%, the highest level since 1934. A growing number of businesses have warned recently that they may no longer be able to absorb the rising costs of imported components and supplies. Overall inflation has risen from a 2.3 percent annual rate in March to 2.6 percent in June with appliances, clothing and furnishings becoming more expensive.

Meanwhile, job growth nationally slowed to a crawl in July as U.S. employers added a less-than-expected 73,000 new jobs. Deep revisions to the previous two months now indicate that the job market is considerably worse than previously thought.

And while second-quarter economic growth rebounded to 3 percent, GDP actually downshifted absent the effect of import and inventory tariff preparations. Growth in real final sales to private domestic purchases, a more reliable indicator of demand conditions, slowed to a 1.2% annual rate in the second quarter from 1.9% in the first quarter, with consumer spending and fixed business investment posting tepid growth.

“Fear of tariffs led to a surge in imports in the first quarter, detracting from GDP; the resulting inventory drawdown boosted GDP in the second quarter. I think the fairest way to view the underlying trend is the annualized 2.5% growth for the first half as a whole, which is almost exactly in line with the fourth-quarter number,” said Michael Tyler, Vice Chair of the AIM Board of Economic Advisors.

It’s no coincidence, then, that the AIM Business Confidence Index (BCI) has remained in pessimistic territory since March, when the administration began to roll out its tariff regimen.  AIM member employers are seeing increased prices for inputs, shrinking margins, pressure to raise prices and retaliation in key overseas markets.

The monthly BCI fell slightly during July to 48.6, near the 50-point mark that separates overall positive and negative outlooks. It marked the fifth consecutive month of pessimistic readings and left the Index 3.4 points less than the same month a year ago.

“To see three months in a row of fewer than half of industries adding jobs is unprecedented outside of a recession,” Wells Fargo senior economist Sarah House told The Wall Street Journal. “Businesses are standing pat with their head counts as they wait to see what lies ahead.”

The bottom line for AIM member companies in Massachusetts is uncertainty, which is reflected in comments on the confidence survey.

“Manufacturers seem to be holding tight to their finances and are not investing in production upgrades or new equipment that would allow them improvements in their process…From where I sit in Western Massachusetts, this is not boding well for the economy,” wrote one company.

But another reported: “Orders steady. Can see demand building for increased revenue in Q4 and beyond.”

Amid steadily shifting tariff policy, the US has brokered deals with major trading partners like the European Union, Japan, South Korea and Vietnam. Most of these agreements call for tariffs of between 15 and 20 percent.

At the same time, the administration has imposed a 35 percent tariffs on goods from Canada not covered by the existing U.S.-Mexico-Canada trade agreement. That’s a matter of grave concern for Massachusetts, which sends $3 billion worth of products north of the border each year.

How have the tariffs affected your business? Let us know by emailing Chris Geehern, Executive Vice President, cpg@aimnet.org.

Employers themselves ultimately provide the clearest view of the direction of the economy. We’ll be listening carefully during the second half of 2025.