Tariffs, fuel costs, and rising rates squeeze U.S. manufacturers

American businesses in manufacturing, transportation, and retail are facing a triple threat from tariffs on raw materials, record fuel prices due to the Iran war, and the Federal Reserve's first interest rate hike in three years, according to CNBC. Allen Eden, 56, owner of Original Saw Co., a small industrial saw maker in Iowa, has had to increase inventory due to uncertainty over parts availability.

The price of one bracket used in his motors jumped from $42 to $87, a 100% increase. Middle-market manufacturers are in a particularly tight spot as rising steel and aluminum costs force them to raise prices, leading to inflation, and resulting in higher financing costs due to Fed rate hikes. Smaller companies with short-term debt will face even higher borrowing costs.

Industries like auto suppliers, auto parts makers, and diesel-dependent businesses are feeling the impact the most. For example, Lucerne International, a Detroit-area auto parts manufacturer, suspended U.S. production and scrapped a $50 million facility in Michigan due to high costs. Grupo Antolin, a Spanish auto parts maker with major customers like Ford and GM, filed for bankruptcy protection in the U.S. due to tariffs, rising costs, and supply chain disruptions.

Global fuel prices have reached an all-time high, with diesel averaging $6.27 per gallon, and the war in Iran has disrupted tanker traffic through the Strait of Hormuz and halted Russian diesel exports, removing about 20% of sea-based diesel supply. Jeff Vojta, CEO of Dilworth Coffee, a North Carolina distributor, says the current disruption is worse than the pandemic, citing shipping issues, container shortages, high fuel costs, and higher fertilizer prices.

Big tech and financial firms are better positioned to withstand the impact of rising rates due to their substantial cash reserves and long-term borrowing, but capital-intensive sectors like manufacturing, trucking, and commercial real estate are under significant pressure with few easy options for relief.