Jim Nielsen puts the finishing touches on a radial arm saw at Original Saw Co. in Britt, Iowa.
Photo: Jennifer Eden
Fewer, more expensive flights. Freight surcharges. Manufacturers are hoarding inventory. Even bankruptcy.
For American companies large and small, the combination of tariffs under President Donald Trump’s trade policies, rising fuel prices due to the Iran war and now rising interest rates is forcing executives to make difficult decisions.
Allen Eden has been holding extra inventory for his 25-person company Original Saw Co. in Britt, Iowa, which makes industrial chainsaws for wood and metal work, as he struggles with rising prices for aluminum, steel and key parts.
One example: The price of a “small bracket” he uses for his saw motors more than doubled this summer, rising from $42 to $87, he said.
“It’s terrible,” Eden, 56, told CNBC. “[I’m] I’m just trying to keep more of the stuff because I don’t know if we can get it done later.”
It’s a three-way pressure for companies in manufacturing, transportation and retail: tariffs make raw materials and goods more expensive. Higher fuel prices increase manufacturing and transportation costs. And rising interest rates make it more expensive to finance the inventory and equipment companies need to keep operating.
While few sectors are completely spared from this pressure, medium-sized manufacturers are particularly in a bind. Rising steel and fuel costs are forcing them to pass on at least some of that spending through higher prices, helping to ease stubborn inflation in recent years.
But to curb inflation, the Federal Reserve raised interest rates for the first time in three years and signaled that another rate hike was possible this year. That makes it more expensive for companies to finance inventory and borrow for growth, while higher input costs and record prices for diesel, used for trucking, squeeze margins.
Allen Eden, owner and president of Original Saw Co. in Britt, Iowa.
Photo: Sidney Borrill-Patch | Original Saw Company
Price increases for Edens saws sold to both mega retailers Home Depot and directly to small and medium-sized manufacturers is inevitable, said the business owner.
The pain is not evenly distributed. Smaller businesses tend to rely on shorter-term loans, meaning Fed rate hikes have a more direct impact on their costs. JPMorgan Chase said Dubravko Lakos-Bujas, head of global strategy, in a Sept. 14 note.
But regardless of size, capital-intensive sectors such as manufacturing and equipment suppliers, logistics companies including trucking fleets and commercial real estate are also suffering more in a rising interest rate environment, according to Lakos-Bujas.
“The combination of higher tax rates and higher fuel prices means that sectors that are highly exposed to both come first,” said Gregory Daco, chief economist at EY-Parthenon, the global advisory arm of Ernst & Young.
“Every type of manufacturing will be disproportionately affected by higher fuel prices,” he said.
Rising fuel and raw material costs have weighed on both material manufacturers and the retailers they supply.
Mark Costa, CEO of the industrial giant Eastman Chemicalsaid in May that the one-two punch of interest rates and inflation was cornering its industry. Eastman makes plastics, additives and other materials used in products as diverse as medical devices, animal feed and car windshields.
“Everyone had their backs to the wall and had no room to absorb these increases,” Costa said. “Everyone is raising prices very quickly, faster than I have ever seen in 20 years.”
On the retail side, unexpected pressures from energy and raw material costs will “fully offset” the benefit of $730 million in tariff refunds, Home Depot CFO Richard McPhail said last month.
“There’s just so much uncertainty right now. … You think about inflation, interest rates, fuel prices,” McPhail said at a conference last week.
Holes in the supply chain
Manufacturers in the domestic automotive supply chain are most affected.
Lucerne International, a privately held auto parts maker based in suburban Detroit, halted production in the U.S. last year and last year canceled plans for a $50 million aluminum forging plant in Michigan.
“The start of Trump Tariffs 2.0 has really torn holes in our global supply chains and significantly increased costs,” said Lucerne Managing Director Mary Buchweiser, pointing to higher costs for raw materials, including aluminum, as well as finished parts.
Buchweiser, whose company still produces overseas, said it has shifted its U.S. operations to warehousing, distribution and tariff mitigation solutions for other companies that offer “much better margins.”
“There is no doubt that there is margin pressure for suppliers,” said Paul McCarthy, CEO of automotive supplier trade association MEMA. “Some of it we try to absorb… and then some of it we have to pass on.”
According to consulting firm Berylls by AlixPartners, growth in earnings before interest and taxes at the top 100 auto suppliers fell to 4.2% last year, compared to more than 6% in 2021. Among the top 10 automakers, that figure is 5.2%, compared to almost 8% in 2022.
Not all car manufacturers have managed the additional costs. Spanish auto parts manufacturer Grupo Antolin, which, among other things, supplies components to automobile manufacturers ford, GMVolkswagen and Stellarfiled for Chapter 15 bankruptcy protection in the U.S. in July. The company cited tariffs, higher raw material and energy costs and supply chain disruptions as reasons for the restructuring.
Division in corporate America
Better off are the giants of the corporate world, like the technology and financial companies that fill it S&P 500. These companies typically have more cash reserves and take on long-term debt, giving them some protection from the impact of higher interest rates.
Most larger businesses can thrive until borrowing costs rise even further. According to JPMorgan’s Lakos-Bujas, who cited 80 years of data, the pain would come when the 10-year Treasury yield hits 6%, up from about 5% now.
Borrowing costs are expected to remain higher for longer. Persistent inflation, which forced Warsh to raise the Fed’s key interest rate against Trump’s wishes, as well as the US government’s heavy borrowing, are putting upward pressure on interest rates.
Across America, businesses are grappling with these shocks in different ways. The divide boils down to one question: Who has the pricing power?
Some industries have learned that they can easily pass higher costs on to consumers, while others fall into a trap: If they raise prices too much, they risk destroying demand.
Federal Reserve Chairman Kevin Warsh speaks during a news conference at the Federal Reserve’s headquarters in Washington on September 16, 2026. Warsh discussed the central bank’s decision to raise interest rates for the first time since 2023 at a news conference following its last monetary policy meeting.
China News Service | China News Service | Getty Images
Airline executives last week boasted of higher fares as customers continue to book trips, particularly abroad, passing on increased fuel costs to travelers. Airlines scaled back growth plans and cut less profitable flights, even after the collapse of Spirit Airlines this year.
Fewer flights can mean more expensive airline tickets, and fares rose more than 23% in August from a year earlier, according to the latest inflation data. But even strong demand has its limits.
“The consumer has been incredibly, incredibly resilient,” United Chief Financial Officer Mike Leskinen said Wednesday during a Morgan Stanley conference in Laguna Beach, California.
“But there are some border routes that don’t make sense in a higher fuel consumption environment. That’s why we cut them,” Leskinen said. “You should see us continue to behave… like this.”
A majority of American businesses remain resilient despite higher fuel and financing costs. Profit margins at large companies are near historic highs, driven by strong productivity gains, labor costs that have remained under control and increasing investments in artificial intelligence that are driving growth.
But one risk with Warsh’s efforts is that higher interest rates don’t directly address the root causes of inflation: the Iran war, the Trump administration’s tariffs and the AI boom that has driven up prices for everything needed to build and operate data centers, from electricity to memory chips, copper and land.
A rate hike to slow the U.S. economy could slow it too much or send stocks into a tailspin, EY-Parthenon’s Daco said.
“The economy is resilient, but it faces growing risks,” he said. “A shock could come sooner than we all think.”