Impacts of Tariffs on Rural Businesses: Insights from Our Business Surveys

As a part of the Richmond Fed's March business surveys, we asked firms how tariff policies might affect their business. Additionally, we asked responding businesses to indicate their geographic footprint: urban, suburban, small town, and/or rural. We were particularly interested in understanding how rural-operating businesses expect to be impacted by tariff policies compared to their urban counterparts. In our analysis, we consider rural-only businesses to operate only in rural areas or small towns. We consider urban-only businesses to operate only in cities or suburban areas.

We find that businesses operating only in rural areas were more likely to expect significant impacts from tariffs than businesses operating only in urban areas. However, rural-only businesses were less likely to expect negative impacts than businesses that operate in urban areas. Importantly, rural businesses were more likely to be manufacturers, and that sector is likely to face more impact from tariffs.

Rural Businesses Expect More Significant Impacts from Tariffs

Most respondents in our March survey expected to be impacted by tariffs. However, nearly all of the 26 rural-only businesses that responded expected to be impacted (92 percent) compared to 77 percent of the businesses that operate in urban areas only. More rural-only businesses expected the impact to be significant compared to urban-only businesses (31 percent versus 20 percent, respectively).

When asked if the impact from tariffs will be positive or negative for their business, few firms indicated that the impact would be positive. More urban-operating businesses expected negative impacts from tariffs than rural-only businesses (59 percent and 78 percent, respectively). However, about one-third of the rural-only businesses expected the impact to be neutral, which is notably greater than expectations of businesses operating exclusively in urban areas or businesses that operate in both area types.

Tariffs Factor into Prices for All Businesses

Since the start of the year, less than half of businesses operating only in rural areas or only in urban areas adjusted their prices due to unanticipated costs. For those that did adjust prices, the cost increase was mostly due to increases in labor costs. Slightly more than 20 percent of firms operating in rural areas indicated increasing prices due to cost increases from tariffs, which was similar across geographies.

When looking ahead three months, a majority of businesses — regardless of operating area — expected to increase prices due to unanticipated costs. Labor costs remained an important factor in expectations for increased prices, especially for rural-only businesses. However, fewer rural-only businesses expected to increase prices in the next three months due to tariffs or trade policy compared to urban-only firms and firms that operate in both geographies.

Industry Structures Help Explain Tariffs Impacts

In a recent Regional Matters post, and a recent Economic Brief, we explored how manufacturers were more likely than non-manufacturing firms to expect impacts from tariffs.

As is clear from the table below, half of rural-only responding businesses were manufacturing, compared to 18 percent of urban-only businesses and 28 percent of businesses that operate in both areas. The higher share of manufacturing in rural areas helps explain why rural-only firms — based on analysis for this article — were more likely to expect significant impacts from tariffs than their urban-only counterparts.

Conclusion

Both rural and urban businesses in the Fifth District expected to be impacted by tariffs. However, rural-only businesses — which are more likely to be manufacturers — were more likely to expect significant impacts from tariffs, although they were less likely to report that those impacts would be notably negative. The Richmond Fed will continue to track how our rural and urban businesses are faring through changing trade policy.

Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.