Price Hikes Backfire as Tariffs Erode Margins and Demand

Global trade has grown more uncertain, with tariffs hardening into a new economic reality for businesses in the United States.

For mid-market companies, the challenge is no longer whether tariffs will impact their operations, but how to preserve profitability without driving customers away in the process.

PYMNTS Intelligence’s August edition of the 2025 Certainty Project, “ Profit Slips, Policy Shifts: Product Leaders Navigate the Crossfire ,” finds that 9 in 10 goods firms and more than 7 in 10 services firms have raised prices in response to tariffs and other macroeconomic pressures. Yet, three-quarters of mid-market goods executives and nearly half of services firms report shrinking profit margins over the past year.

Consumers and businesses have begun pulling back. Roughly 75% of goods companies and their services counterparts reported weakening demand across consumer and business segments. Higher prices may cover some costs, but they risk eroding brand loyalty and curbing sales volumes. In many cases, firms find that raising prices only accelerates margin decline.

Redesigns and Discontinuations Replace Tariff-Driven Price Increases

Instead of leaning harder on price hikes, many product leaders are turning to structural adjustments. Nearly all mid-market firms surveyed acted in the past year beyond raising prices, with goods firms leading the shift.

Three strategies stand out:

Product discontinuations: One in four goods firms dropped items directly hit by tariffs. While that can remove popular products from shelves, it helps protect margins on the remaining portfolio.

Product redesigns: One in five goods firms reworked products to use alternative materials or cheaper production methods. This allows companies to keep products on the market without pushing further cost increases onto consumers.

Supplier negotiations: One in five firms reported renegotiating supplier contracts to manage higher input costs. By tackling the expense side, companies reduce the pressure to raise prices downstream.

These adjustments underscore how executives are prioritizing customer retention while absorbing tariff costs in less visible ways.

Tariffs Now Seen as a Long-Term Operating Reality

For many executives, tariffs have shifted from a temporary policy disruption to a structural condition. Nearly half of product leaders surveyed describe tariffs as a permanent part of U.S. trade strategy, while another 45% view them as a mix of long- and short-term measures. Only 7% still regard tariffs as a short-term tactic.

That shift in perception is critical. Treating tariffs as a fixture forces firms to invest in redesign, supply chain restructuring and new compliance strategies rather than quick fixes like price adjustments. Executives with greater confidence in their business outlook are more likely to regard tariffs as permanent, suggesting that clarity around the trade environment may enable more proactive, long-range planning.

Regulation Adds Another Layer of Uncertainty

Tariffs are not the only headwind. Mid-market companies also face heightened uncertainty over tax policy, labor rules, data privacy and artificial intelligence regulation.

More than 70% of executives across goods and services now report at least moderate regulatory uncertainty, a rise from a year ago.

The combined pressure of tariffs and shifting rules has left firms with little room to maneuver. Many are delaying investment decisions, spending more on compliance or reconfiguring operations to stay ahead. Together, these moves show that preserving margins in today’s environment means more than cost-passing; it requires structural adaptation.