Navigating Trade Volatility: How to Spot Profit-Resilient Firms in a Tariff-Driven World

The latest New York Federal Reserve survey for June 2025 reveals a stark reality: tariffs are reshaping corporate strategies, pricing power, and profit margins with unprecedented speed. As manufacturers and service firms grapple with tariff rates now averaging 35% and 26% respectively, the ability to mitigate costs without sacrificing profitability will define winners and losers in this trade-war era.

The Tariff Tsunami: Costs Escalating, Strategies Diverging
The NY Fed data underscores a critical split between sectors. Manufacturers, facing a 25-percentage-point tariff surge over six months, saw costs for tariffed goods rise by 20%, while service firms endured a 17-percentage-point tariff spike, driving a 15% cost increase. Crucially, 75% of businesses passed at least some of these costs to customers—often within weeks of the tariff hit. But not all firms are equal in their resilience.

Sector-Specific Opportunities: Where to Bet
1. Manufacturers with Domestic Supply Chains
Firms that source locally or vertically integrate production avoid tariff volatility. The survey highlights that under a third of manufacturers are already boosting domestic supplier reliance. Look for companies like 3M (MMM) or Caterpillar (CAT), which have long prioritized U.S. manufacturing hubs. Their ability to shield margins from import taxes could drive outperformance.

1. Service Firms with Pricing Power
   While service firms face higher absorption rates (45% fully absorbed costs vs. 33% for manufacturers), those in sectors like healthcare, utilities, or software—where demand is less discretionary—can sustain price hikes. UnitedHealth Group (UNH) or Microsoft (MSFT) exemplify firms with inelastic demand, allowing them to pass costs without losing customers.
   

2. Cost Controllers in Defensive Industries
   Companies with lean operations or automation advantages can weather tariff storms. Costco (COST), for instance, has used bulk purchasing and reduced overheads to absorb costs better than rivals. Similarly, industrial automation leaders like Rockwell Automation (ROK) benefit from reduced reliance on imported components.

Sectors to Avoid: Tariff Traps
The survey's warning about weakening consumer demand for discretionary goods and service firms' capital spending cuts (25% decline vs. 13% rise in manufacturing) flags risks for industries like apparel, electronics retail, or travel. These sectors, heavily reliant on imported inputs and price-sensitive consumers, may see margins crumble if tariffs escalate further.

The Uncertainty Tax: Why Flexibility Matters
Businesses are paralyzed by conflicting tariff forecasts: service firms expect a 50-33 split toward rising tariffs, while manufacturers lean toward declines (33-50). This volatility favors firms with agile supply chains or diversified revenue streams. For example, Walmart (WMT)'s mix of domestic and offshore sourcing, paired with its ability to shift suppliers, offers a buffer against sudden tariff shifts.

Investment Playbook: Prioritize Margin Defenders
- Buy defensive manufacturers with U.S. supply chains (e.g., General Dynamics (GD), Stanley Black & Decker (SWK)).
- Overweight service firms with pricing power in healthcare/tech (e.g., Thermo Fisher Scientific (TMO), Salesforce (CRM)).
- Avoid retailers and discretionary firms with high import dependency (e.g., Gap (GPS), L Brands (LB)).

Final Take: Trade Policy ≠ Doom—If You Pick the Right Firms
The NY Fed data shows that tariffs are a double-edged sword: while they pressure margins, they also reward companies with foresight. Investors should focus on firms that have already insulated themselves through domestic sourcing, pricing discipline, or cost-cutting—traits that will endure even as trade winds shift. In this era, profit resilience isn't just about surviving tariffs—it's about thriving in their shadow.

Disclosure: The author holds no positions in the stocks mentioned.