Understand and Explain the Impact of Increased Tariffs on Your Tenants
Introduction
This month has brought almost daily changes to U.S. trade policies, specifically the tariffs imposed on our global partners. The situation appears to be de-escalating, but after many conversations with our clients on this topic, today TRA is sharing a summary of key markers which can be used to assess portfolio risk and strengthen communication with investors.
Timeline
April 2, 3, 4 U.S. trade war begins with Canada and China
April 5 U.S. implements 10% tariffs on nearly all countries
April 8, 9 Trade war escalates with retaliatory tariffs, including from the EU.
April 9 Reciprocal tariffs paused for 90-days, although 10% universal tariffs remain for nearly all imports from any country, and 145% for products originating in China
The administration’s goal is 90 deals in 90 days. If agreements are reached with top trading partners - including South Korea, Japan, India, Canada, and Mexico - the situation could shift quickly.
Short- and Medium-Term Impact (April 2, 2025 to June 30, 2025)
Small and medium sized businesses (“SMBs”) are likely to be impacted, especially if they were unable to acquire inventory ahead tariff implementation. Key industries include:
- Drop shippers
- 3PLs
- Freight companies
- Retailers and e-commerce companies
- Construction and building
- Hospitality and leisure companies
- Restaurants
- Agriculture businesses
Automotive companies are uniquely exposed because 25% tariffs remain on imported goods from Canada and Mexico. Businesses impacted by this include:
- Automotive OEMs
- Dealerships
- Tier 1 to Tier 3 automotive suppliers
Larger enterprises across a range of other industries can likely sustain operations without dramatically hiking prices in the short term, but may be exposed longer term if tariffs remain.
Long-Term Impact (After July 1, 2025), Key Markers for CRE
Nearly all industries will be exposed to the long-term implications of increased tariffs. TRA developed a series of macro indicators that are easy for clients to apply to their own portfolios.
1. U.S. 10-Year Treasury Yields and the U.S. Dollar Index
https://fred.stlouisfed.org/series/DGS10
and
https://www.cnbc.com/quotes/.DXY
What it is
The U.S. 10-Year Treasury Yield represents the interest rate investors receive for holding a U.S. 10-Year Treasury bond. The U.S. Dollar Index represents the U.S. Dollar’s value relative to a weighted basket of six currencies (the Euro, Japanese Yen, Canadian Dollar, Swiss Franc, British Pound, and Swedish Krona).
How to interpret it
Usually these two metrics have a positive relationship. If yields rise, the value of the dollar should also rise. If yields fall, the value of the dollar should also fall relative to other currencies. If yields on the 10-Year Treasury rise and the value of the dollar falls, that could signal a weakening of the dollar in global trade with increased inflation or financial risks in the U.S. Over the past month, the dollar has weakened, and yields have risen. If this trend continues, it could be an early indicator of greater financial stress.
2. University of Michigan Consumer Sentiment Index (“MCSI”) and The Conference Board Consumer Confidence Index
https://www.sca.isr.umich.edu/
and
https://www.conference-board.org/topics/consumer-confidence
What it is
Both the MCSI and the Conference Board Consumer Confidence Index measure consumer sentiment and expectations about their outlook on income, labor, and future spending conditions.
How to interpret it
Drops in consumer expectations from the prior month suggest consumers are getting nervous, while increases in expectations suggest consumers are getting less anxious. Both indexes have been falling in 2025, suggesting consumers may tighten their belts and reduce future consumption. This does not always happen, but it signals how consumers are feeling, and is thus a softening macro signal.
3. GDPNow
https://www.atlantafed.org/cqer/research/gdpnow
What it is
Helpful weekly forecasting tool that uses inputs to estimate the U.S. Bureau of Economic Analysis’s official quarterly assessment of GDP.
How to interpret it
The Atlanta Fed GDPNow estimate will go down when expected GDP inputs are softer, and it will go up if GDP inputs are more resilient. It typically is less accurate early in the quarter but gets more accurate as more data comes in. GDP growth has been between 2.5% and 3% in recent years. Anything above that would mean stronger growth, while anything below that would signal weaker growth.
4. Unemployment
What it is
It is the percentage of the labor force that is actively looking for work but unable to find it.
How to interpret it
If the unemployment rate goes up, then more people are out of work, seeking unemployment benefits. If it goes down, then more people have either left the labor force or found employment. The national unemployment rate has been between 3.5% and 4.2% in the last two years.
5. Core Personal Consumption Expenditures Price Index
https://www.bea.gov/data/personal-consumption-expenditures-price-index-excluding-food-and-energy
What it is
The U.S. Federal Reserve’s preferred metric for gauging inflation, the Core Personal Consumption Expenditures (“PCE”) Price Index measure the change in prices compared with one year ago across a range of spending categories including durable goods, clothing, services, and housing, excluding food and energy.
How to interpret it
The U.S. Federal Reserve has a target of 2% YoY inflation. Any reading above 2% suggest to the Fed that inflation is not yet fully under control, and as such, it will adjust monetary policy levers to rein in inflation until it feels it is stabilized at 2%. Currently Core PCE is at 2.8%, which is above the Fed’s target. If tariffs begin to impact pricing, it will likely show up in a higher Core PCE print, which is released monthly.
6. Freight Transportation Services Index (“TSI”)
https://fred.stlouisfed.org/series/TSIFRGHT
What it is
The TSI measures the monthly changes in the volume of freight moved in the U.S. across modes, including rail, truck, pipeline, water, and air freight.
How to interpret it
A drop in value indicates a reduction in the volume of freight moved in the U.S. for that month. If it rises, it represents an increase in volume of freight moved.A prolonged reduction in volume could indicate supply chain disruptions or a reduction in overall trade and consumption.
Closing Thoughts
Macroeconomic data like the six data points outlined above put context around the trade policy changes affecting tenants. We at TRA continue to review this and more macroeconomic data that we believe is most valuable to our clients’ portfolios and the underlying creditworthiness of their commercial tenants. As always, we are here to discuss these metrics or any credit concerns on your desk. Reach out to us any time.
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