Small Businesses Bracing for Recession: How Trump Tariffs and Partisan Divisions Shape the Economic Outlook

The latest CNBC/SurveyMonkey small business survey paints a picture of cautious optimism amid mounting economic headwinds. With 74% of Americans—and a majority of small business owners—believing a recession is imminent, companies are adjusting strategies to weather the storm. Yet, the path forward is clouded by partisan divides over trade policies, rising inflation, and the lingering impact of Trump-era tariffs.

Recession Fears Drive Prudent Choices

The Small Business Confidence Index (SBCI) for Q1 2025 stands at 56, hovering near neutral territory. While 52% of businesses anticipate revenue growth and 42% rate current conditions as “good,” the optimism is tempered by operational adjustments. A would reveal a steady decline from its 2020 peak of 85, underscoring persistent anxiety.

Key moves include cost-cutting: 78% of businesses have reduced non-essential spending, such as dining and entertainment, while 43% have boosted essential spending on groceries. Meanwhile, 28% plan to hire, but 26% cite tariffs as complicating their decisions—a stark reminder of how trade policies now shape labor markets.

Tariffs as a Double-Edged Sword

The Trump-era tariffs continue to cast a shadow. A staggering 51% of small businesses say the tariffs will impact their operations, with Democrats 2.5x more likely than Republicans to voice concern (76% vs. 31%). For many, the tariffs have forced strategic pivots:

• 41% of businesses with investments have altered portfolios due to tariff-linked stock market volatility.
• 32% delayed purchases, while 15% stockpiled goods to offset supply chain disruptions.

A illustrates how tariffs have dampened industrial sectors. Caterpillar’s revenue dipped 8% in 2019 amid trade disputes, though it has since rebounded. For smaller firms without such financial buffers, the strain is existential.

Partisan Rifts Deepen Economic Uncertainty

The survey’s most striking divide lies in political affiliation. Democrats are far more likely than Republicans to see tariffs as harmful (76% vs. 31%) and to fear mass deportations’ impact on their businesses (80% of Democrats vs. 12% of Republicans). Meanwhile, only 24% of small businesses believe current trade policies will benefit them, with 43% predicting harm.

This polarization extends to inflation, which 63% of small businesses expect to worsen. A would show a 5.8% rise in 2022, cooling slightly to 3.4% in 2025—but businesses still see prices as a top threat.

Financial Stress and the Safety Net

With 73% of Americans, including small business owners, reporting financial stress, the stakes are high. Sixty-two percent worry that federal budget cuts will erode Social Security, a lifeline for 35% of retirees. The median income needed to feel “financially secure” has surged to six figures, a bar many small businesses struggle to meet.

Conclusion: Navigating a Fragile Equilibrium

The SBCI’s 56 score reflects a precarious balance between cautious hope and pervasive uncertainty. While 42% of businesses see tech advancements as opportunities, tariffs and inflation loom as existential risks. The partisan divide over policies—whether trade, immigration, or taxes—adds another layer of instability.

Crucially, the data underscores a split between businesses that can adapt and those that cannot. Companies with diversified investments, resilient supply chains, and flexibility to navigate regulatory shifts may thrive. Those clinging to outdated models risk obsolescence. Investors should prioritize firms with agile strategies—like tech-driven logistics or cost-conscious manufacturing—and avoid sectors overly reliant on tariffs-vulnerable trade routes.

In the end, small businesses’ resilience will hinge on more than just economics. It will require policymakers to address the divides that are making every business decision a political one—and investors to bet on those who can navigate both markets and ideologies.