Tariff Shock Forces a Shift in Product Strategy

Middle-market product leaders are navigating a business landscape where tariffs, cost pressures and macroeconomic volatility are reshaping both the pace and direction of innovation. The latest edition of the PYMNTS Intelligence “2025 Certainty Project” shows that firms are shifting away from long-range digital transformation strategies in favor of short-term operational fixes to stabilize production, pricing and supply flows. Goods-sector executives, in particular, are registering sharper customer demand drops, higher uncertainty and more strained margins, prompting them to rely more heavily on supplier negotiations and the targeted use of artificial intelligence to offset rising costs. Although uncertainty is elevated, many product leaders remain cautiously optimistic about the next year, signaling that firms are adapting rather than retreating.

Tariff Disruptions and Firm Responses

Tariff Exposure

Product leaders in goods-producing firms report far greater sensitivity to tariff-driven disruptions than CFOs in such firms did only one month earlier. In October, 47% of goods-sector product leaders said tariffs were “mostly or completely negative” for their business finances. This is up from 23% in September. The widening gap reflects how the leaders closest to sourcing and production feel tariff pressure earlier and more acutely, translating external shocks into operational concern.

Operational Fallouts Due to Tariffs

More than seven in 10 product leaders anticipate that tariffs will lead to supply shortages, delays and higher costs associated with reconfiguring supply chains. These expectations exceed those of goods-firm CFOs surveyed a month earlier, underscoring a frontline view of risk among leaders who directly manage sourcing and logistics.

Effects on Pricing Limits

Tariff exposure is highlighting a stark divide in pricing power. Goods producers and smaller firms facing steeper drops in demand report less ability to raise prices and instead rely more on renegotiating supplier terms to offset cost pressures. Product leaders confirm that the most exposed organizations are shifting away from price increases and toward back-end cost adjustments, reflecting a tactical focus on preserving margins without eroding customer demand.

Innovation Pause

Tariff-related disruptions are causing more than half of product leaders to shift their attention from long-term innovation initiatives to near-term operational fixes. That shift is even more pronounced among goods firms and weaker performers, where up to 69% report reallocating their focus to immediate needs. Among leaders expecting negative financial impacts from tariffs, 85% say they are moving away from future-oriented technology bets, signaling a defensive pivot in corporate strategy.

Funding Constraints

Six in 10 product leaders say tariff uncertainty is constraining their ability to fund AI and automation projects, with the pressure most acute among goods firms (71%), weaker performers (69%) and those most pessimistic about tariff impacts (77%). This presents a strategic paradox: The firms most reliant on automation to cope with rising costs are also the first to pause investment, widening the innovation gap between companies positioned to modernize and those stuck in survival mode.

AI Priorities

AI adoption is becoming highly selective. Two-thirds of product leaders (65%) say tariff pressures are driving investment in AI-powered supply-chain optimization, and that share climbs to 82% among goods producers. Yet only 37% are accelerating AI to offset pricing impacts, and just 22% are using AI to reduce labor reliance. Firms are prioritizing AI where it delivers operational stability, not broader structural change.

Uncertainty Surge

Operational uncertainty has risen across four consecutive quarters, with goods-sector leaders showing the highest levels of strain: Only 12% report low uncertainty, while 35% report high uncertainty—the largest share in the past year. Despite this, half of all product leaders still expect conditions to improve over the next 12 months, signaling resilience amid elevated unpredictability driven by demand volatility, supply-chain friction and shifting trade policy.