Labor & Employment Law Daily Wrap Up, REPORTS—New York Fed details impact of high tariffs on employment, investment, and pricing, (Jun 5, 2025)

By Patricia K. Ruiz, J.D.

Most businesses are passing on at least some of the increased tariffs to customers.

A survey by the Federal Reserve Bank of New York (New York Fed) showed signs that the sharp and rapid increase in tariffs affected employment levels and capital investments. Adjustments to headcounts were fairly modest, slightly tilting toward a small reduction among manufacturers and service firms, New York Fed reported.

Historically high tariffs. As a result of increased U.S. import tariffs, which reached historically high rates in recent months, costs to businesses for imported inputs also rose. Businesses subject to higher costs are faced with decisions about whether to absorb the tariffs through lower profits, raise prices to recover the higher costs, or to implement a combination of both. Such decisions are influenced by the degree of competition in the marketplace, potential customer reactions, and the ability to maintain profit margins. New York Fed surveyed businesses in the New York and northern New Jersey region regarding the tariffs they faced, recent changes in the cost of imported goods, and whether they were passing on tariff-induced cost increases to their customers.

Increases passed to consumers. The survey indicated that about three-quarters of businesses passed on at least some of the higher tariffs to their customers, with nearly one-third of manufacturers and about 45 percent of service firms passing along all tariff-induced cost increases by raising their prices. Manufacturers reported that the cost of their tariffed goods have increased by an average of about 20 percent over the past six months, and service firms reported an increase of about 15 percent on average. However, firms’ costs of tariffed goods may not have increased by as much as the tariffs have increased, in part because importers may have switched toward suppliers in other countries or in the U.S. Additionally, foreign suppliers may have also lowered prices to help offset the tariffs. The survey further showed that a significant share of businesses also raised the selling prices of goods and services unaffected by tariffs.

Employment levels, capital investments. Survey results showed the sharp and rapid increase in tariffs affected employment levels. Adjustments to headcounts were fairly modest, tilting slightly toward a small reduction among both manufacturers and service firms. Manufacturers also reported little net change in capital spending due to increased tariffs, with 13 percent of manufacturers increasing investment, compared to 10 percent decreasing investment. Capital spending fell noticeably in the service sector, with nearly a quarter of service firms decreasing investment and five percent increasing investment.

Companies: Federal Reserve Bank of New York

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