On April 2, U.S. President Donald Trump announced new ‘reciprocal’ duties on imports from 185 countries. Citing the new tariffs, J.P. Morgan became the first major Wall Street institution to forecast a U.S. recession in the second half of 2025, indicating that in addition to higher inflation, the tariffs would likely result in rising unemployment and slower growth. The prediction follows the first contraction in U.S. factory activity of the year during the month of March – a trend that also occurred in Asia with Japan, South Korea, and Taiwan displaying falling factory activity. In addition to these indicators, inventories have reached their highest levels since 2022, indicating stockpiling amidst tariff uncertainty. Measures of distressed debt – securities that companies nearing bankruptcy or undergoing financial restructuring typically sell at significantly discounted rates and often struggle to repay in full on maturity dates – increased worldwide to their highest levels in 15 months. Moody’s estimates that global default rates could rise to 8% over the next year from under 5% at the start of April.
With more than $43 billion (€37.9 billion) in bonds and loans reaching rates that will make it harder for companies to refinance, it is expected that many companies will need to restructure via bankruptcy or through other methods outside of the courts. Already, internal Everstream Analytics data shows that plant closures, insolvencies, and layoffs in the United States have more than doubled in the first quarter of 2025 compared to the first quarter of 2024. Major trade partners like Germany have also seen increased rates of these financial indicators in the first quarter of 2025, while Mexico and Canada have seen increasing counts of industrial insolvencies. While the reciprocal tariffs that were enacted on April 9 were granted a 90-day pause later the same day, the automotive and agriculture industries will still see heavy tariff impacts in the short-term due to sector-specific tariffs and tariff countermeasures from trade partners. Meanwhile, electronics and other sectors with complex supply chains and large exposure to Asia-based suppliers will still see economic impacts from remaining tariffs and non-tariff countermeasures and are at the highest risk of a financial fallout from newly promised sector-specific tariffs or reciprocal tariff resumption. Smaller businesses across all industries may face a disproportionate share of the tariff burden.
Automotive and agriculture sectors to see the heaviest immediate impacts
Automobile manufacturers within and outside of the U.S. have faced targeted tariffs and responded with layoffs, plant closures, and production stoppages as they try to absorb new costs. Even prior to the announcement of country-specific tariffs, the Trump administration announced a 25% tariff on automobiles from April 3. The sector also faces heavy exposure to 25% tariffs that were placed on steel and aluminum imports from March 12. AGP Group, an automotive glass manufacturer, cited tariff driven uncertainty as part of its motivations for closing its plant in Nuevo Leon, Mexico, while original equipment manufacturers (OEM) like Stellantis N.V. and General Motors Co. have enacted production stoppages amidst rising costs. Germany, which leads E.U. nations in car exports to the U.S. with $24.8 billion (€21.8 billion) in sales in 2024, could be particularly exposed to automotive tariffs. The United Kingdom has also indicated that over 25,000 direct jobs in car manufacturing could be at risk from a fall in U.S. exports. Canadian component manufacturers are at risk of economic damages as well as they contend with both U.S. import tariffs and retaliatory import tariffs on items like U.S.-origin steel.
Even if U.S.-based automotive manufacturing units have not yet experienced a fallout from the new tariffs, they may soon face difficulties sourcing metal inputs as steel and aluminum tariffs disrupt supply from Canada. The Quebec Employers’ Council indicated that about half of Quebec’s aluminum companies are currently not accepting or postponing contracts due to tariff uncertainty. Hundreds of Canadian steel and aluminum workers have been laid off due to tariffs including from companies like Canada Metal Processing Group. A further 25% tariff on automotive components that will take effect from May 3 could severely escalate costs, as imported car parts are used for 40-80% of U.S.-made cars. U.S.-based OEMs also have to contend with import tariffs in other markets. Effective April 9, Canada imposed 25% tariffs on some non-USMCA compliant vehicles from the U.S. and China implemented retaliatory measures on U.S.-origin vehicles.
Retaliatory measures also leave companies in the agriculture industry at heightened risk of bankruptcy as producers grapple with new competition with foreign producers. Canada has placed 25% duties on products like poultry, dairy, fruit, and certain grains, while China has escalated 10-15% levies originally placed on select commodities like soybeans, livestock, and corn to 125% on all American imports. Nearly half of all U.S. agricultural exports are currently destined for these two countries along with Mexico, the latter of which has not ruled out retaliatory tariffs, while other trade partners may follow suit in an escalated tariff war. While the E.U. paused countermeasures in response to U.S. tariffs on April 14, these measures, which included tariffs on various U.S. agricultural products including soy, could further stress U.S. producers if they come back into play as planned on July 14. President Trump’s first tariff policies implemented in 2018 led to the U.S. agriculture sector’s loss of market share in soybean sales, one of its top exports, to competitors like Brazil. Farmers suffered a loss of about $27 billion (€23.8 billion) in total agricultural exports, and a large portion of this loss stemmed from a trade war with China. Even as the Trump administration considers potential bailout measures for farmers, a repeat of this could lead to financial repercussions amongst U.S. producers for years to come.
These tariff-related export losses are coming at a time when farmers are already navigating profit losses due to lower commodity prices and the loss of $2.1 billion (€1.8 billion) in USAID food aid contracts. Increased prices of inputs like fertilizer and machinery due to tariffs could exacerbate economic troubles, sending agricultural producers into bankruptcy, along with agricultural equipment manufacturers dependent on their business. Irrigation system manufacturer Lindsay Corp. has already confirmed it will have to increase costs for farmers, and CNH Industrial has paused North American farm machinery shipments while they assess their tariff response.
Sectors dependent on Asian electronic components to see price hikes and supply crunches
Although impacts to automotive and agriculture are most clearly visible, all industries with complex supply chains like aerospace, electronics, and medical devices that have a heightened exposure to Asian suppliers will feel significant price increases that could result in temporary production halts or more serious financial implications. While all Asia-based suppliers face the 10% baseline tariff that has been imposed, China is now subject to an import tariff totaling 145%. Given China and Southeast Asian countries’ domination of global electronic component exports, the initial imposition of now-paused reciprocal tariffs had led electronics trade groups to estimate price increases for critical electronics components of up to 50%. Some electronic devices and components were granted exemptions to the 125% China tariff and the baseline 10% global tariff; however, this reprieve is expected to be short-lived as the Trump administration revealed on April 13 that semiconductors and other unspecified electronics products will face separate new duties within 2 months of the announcement. Even in the absence of higher reciprocal tariffs, companies reliant on electronic inputs are expected to see severe cost increases under the current tariff measures. Johnson & Johnson noted on an April 15 earnings call that it expected to lose $400 million (€352 million) in tariff-related costs in 2025, predominantly due to impacts to its medical technology division; this forecast only took into account tariffs that were in place at the time of the call.
Manufacturers based both in and out of the U.S. may also face material and component crunches due to China’s non-tariff retaliatory measures. In response to heightened tariffs, the country has placed new export controls on rare earth elements and permanent magnets vital for electronics, semiconductors, renewables, medical devices, and automotive and aerospace components. Already, reports indicate that China has halted exports of the impacted products altogether, with export licenses not expected to be issued for at least 45 days. Given China’s control of 69% of rare earth production and 90% of rare earth processing capacity, manufacturers may face supply crunches to critical components that could disrupt manufacturing operations as well as production price increases from tariffs that could put them in growing financial distress. The situation may be further exacerbated following an April 16 announcement that the Trump administration has begun a probe into potential tariffs on critical mineral imports which it expects to conclude within 180 days.
If reciprocal tariffs are reenacted as originally published, countries like Vietnam, Cambodia, Thailand, and Malaysia that frequently provide alternate routes for Chinese goods to enter the U.S. or house factories heavily reliant on Chinese raw materials will find it increasingly hard to remain competitive. These countries were subjected to some of the highest tariff rates announced on April 2 – Vietnamese and Cambodian imports would have faced rates of 46% and 49%, respectively. While these rates remain significantly lower than those imposed on direct Chinese imports, savings may be offset by higher initial costs of materials and delays stemming from inefficient logistics infrastructure when compared to Chinese ports and airports, closing loopholes for U.S. companies to obtain cheaper Chinese goods. In a scenario where these higher reciprocal tariffs are reinstated, the only remaining option for Chinese goods to enter the U.S. is Mexico, where goods with a high share of Chinese content are currently subject to a 25% import tariff. However, companies may lose this last point of access if Mexico decides to raise tariffs on Chinese goods as a negotiating tool with the U.S. As Mexico does not have a free trade agreement with China, the World Trade Organization would allow Mexico to impose tariffs of up to 36% on the latter’s goods if desired.
Small companies will find it hardest to compete globally
Regardless of sector or country, small businesses are likely to suffer the most severe financial impacts from tariffs. The Russell 2000, which tracks shares of small businesses, fell by over 20% due to expected import costs, outpacing declines seen in bigger firms. An employment tracker published by accounting software firm Intuit QuickBooks revealed that layoffs have already begun to strike small businesses, with headcounts at U.S. firms with less than 10 employees falling by about 100,000 in March. These firms may face an outsized impact as well because they are often more reliant on loans than large companies, and bank lending standards are likely to tighten as recession indicators increase.
Business conditions for small companies may worsen further as they try to compete with large firms for alternative supply arrangements. Examples of these scenarios are already beginning to show. For example, due to a sudden drop in demand for aluminum packaging following tariffs, smaller breweries have reported they have been cut off from non-aluminum packaging suppliers as large beverage companies rushed to switch to bottles. This, combined with difficulties stockpiling inventories due to low cash availability, will make it harder for small suppliers to compete with larger counterparts in the months to come if tariff rates remain elevated.
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