Stagnant Economy Leaves Companies More Vulnerable to Trade War Disruptions
In a sluggish global economy, businesses are increasingly susceptible to the ripple effects of ongoing trade wars, which threaten to disrupt supply chains, inflate costs, and erode profit margins. As tariffs and trade barriers escalate between major economies, companies already grappling with stagnant growth face heightened risks of operational setbacks, according to economic analysts and industry leaders.
Economic Stagnation Amplifies Trade War Impact
The global economy has been mired in slow growth for much of 2025, with key indicators such as GDP expansion, consumer spending, and industrial output showing minimal gains. The International Monetary Fund reported in its latest outlook that global growth is projected to hover at a modest 3.1%, weighed down by persistent inflation, high interest rates, and geopolitical uncertainties. Against this backdrop, trade wars—particularly between the United States and China—have intensified, with new tariffs targeting industries from technology to agriculture.
“Companies are operating on razor-thin margins due to the stagnant economy,” said Dr. Emily Chen, an economist at the Brookings Institution. “When you add trade disruptions, such as tariffs or supply chain bottlenecks, it’s like pulling a leg out from an already wobbly chair. Many firms simply don’t have the resilience to absorb these shocks.”
Supply Chain Strains and Cost Pressures
Recent trade policies, including a 25% tariff on imported semiconductors and a 15% levy on agricultural goods announced by the U.S. in June 2025, have sent shockwaves through industries reliant on global supply chains. For example, tech manufacturers, already hit by chip shortages, now face higher costs for components, while farmers are struggling with retaliatory tariffs from trading partners like China, which imposed a 20% duty on U.S. soybeans.
Small and medium-sized enterprises (SMEs) are particularly vulnerable. Unlike multinational corporations, SMEs often lack the resources to diversify suppliers or absorb increased costs. A survey by the National Association of Manufacturers found that 68% of U.S.-based SMEs reported a decline in profitability due to trade-related disruptions in the past year. “We’re seeing orders drop because customers can’t afford the price hikes,” said Maria Lopez, CEO of a mid-sized electronics firm in Ohio. “The tariffs are killing our ability to compete.”
Legal and Regulatory Fallout
The trade war has also sparked a wave of legal challenges. Companies are filing lawsuits to contest tariffs they argue are unfairly applied or violate international trade agreements. In August 2025, a coalition of U.S. retailers filed a case in the U.S. Court of International Trade, claiming that tariffs on Chinese consumer goods violated the Administrative Procedure Act due to insufficient public consultation. Similarly, European firms have lodged complaints with the World Trade Organization, alleging that U.S. tariffs breach global trade rules.
On the regulatory front, governments are tightening oversight of cross-border transactions. The U.S. Department of Commerce recently expanded its export controls, restricting sales of advanced technologies to certain foreign entities. This has led to compliance headaches for companies, particularly in the tech sector, where navigating dual-use regulations has become a costly burden.
Looking Ahead: A Fragile Recovery at Risk
As trade tensions show no signs of abating, experts warn that the combination of a stagnant economy and escalating trade wars could tip vulnerable companies into financial distress. “The longer this goes on, the more likely we are to see bankruptcies and layoffs,” said Michael Tran, a trade policy analyst at Goldman Sachs. “Firms need stability to plan, and right now, they’re getting anything but.”
Policymakers face mounting pressure to negotiate trade agreements that de-escalate tensions and restore predictability. However, with political divisions deepening and economic nationalism on the rise, a swift resolution seems unlikely. For now, businesses must brace for continued uncertainty, with many rethinking supply chains, exploring domestic sourcing, or passing costs onto consumers—a move that risks further dampening demand in an already fragile economy.