Tariffs paid by midsize US companies tripled last year, a JPMorganChase Institute study shows - AP News

AP News 2026-02-20 01:36 Read Original →

Summary Full Article

Tariffs paid by midsize U.S. companies tripled in the past year as President Trump increased average tariff rates from 2.6% to 13%, according to a JPMorganChase Institute study tracking businesses employing 48 million Americans. The research contradicts White House claims that foreign entities pay tariffs, showing U.S. companies are absorbing costs through higher prices, reduced employment, or lower profits, while the trade deficit paradoxically grew by $25.5 billion to $1.24 trillion despite tariffs aimed at reducing it. The findings have sparked fierce political tensions, with White House economic advisor Kevin Hassett calling for Federal Reserve researchers to be "disciplined" for publishing similar conclusions.

Second-Order Effects

Near-term consequences — what happens next

**Banking sector risk assessment recalibration**: With midsize companies (revenues $10M-$1B) facing tripled tariff costs affecting their profitability and cash flow, lenders like JPMorgan and regional banks will need to reassess credit risk models and lending standards for the middle market segment, potentially tightening credit availability for these 48 million-employee businesses at a time when they need capital flexibility to navigate supply chain shifts.
**Accelerated supply chain rerouting through intermediary countries**: The 20% drop in direct payments to China suggests companies are rapidly restructuring procurement, likely shifting to Vietnam, Malaysia, Indonesia, and Mexico as intermediaries—creating short-term logistical chaos, quality control challenges, and potentially higher transactional costs as businesses scramble to establish new vendor relationships while possibly still sourcing Chinese goods through third countries.
**Federal Reserve independence crisis and policy uncertainty**: The White House's unprecedented public attacks on Fed researchers and calls for "discipline" will create institutional tension that undermines confidence in economic data integrity, potentially causing the Fed to hesitate in publishing politically sensitive research and making it harder for businesses to rely on objective economic analysis for strategic planning during an already volatile trade environment.

Third-Order Effects

Deeper ripple effects — longer-term consequences

**Structural weakening of U.S. middle market competitiveness**: As midsize companies—the backbone of American employment and innovation—permanently absorb higher input costs without the pricing power of multinationals or agility of small businesses, this segment will experience compressed margins, reduced R&D investment, and diminished ability to compete internationally, potentially hollowing out the economic tier that historically drove regional job growth and served as the primary pathway for small businesses scaling up.
**Erosion of institutional credibility and "analysis arbitrage"**: The politicization of economic research from the Federal Reserve and major financial institutions will fragment the information ecosystem, with businesses, investors, and policymakers increasingly forced to conduct proprietary analysis or rely on partisan sources, creating information asymmetries that advantage large corporations with dedicated research teams while disadvantaging smaller players and ultimately reducing overall economic efficiency through misallocation of capital based on politicized rather than objective data.
**Acceleration of nearshoring infrastructure boom amid Chinese "value-chain layering"**: The long-term response will likely involve massive capital investment in Mexican, Central American, and Southeast Asian manufacturing infrastructure by both Chinese and Western firms, creating new regional economic dependencies and a more complex, opaque global supply chain where Chinese manufacturing capacity simply adds one additional step, increasing costs system-wide while failing to achieve the stated goal of economic decoupling—ultimately making global trade less efficient and more expensive for decades.