Middle market companies split in view on tariffs, KeyBank survey shows

A new survey by Cleveland’s KeyBank highlights middle market companies’ ambivalence with tariffs and the ongoing challenges posed by an uncertain economic landscape.

The bank’s Middle Market Sentiment Pulse Survey shows a near-perfect split in companies that see the “upside” in tariffs (49%) versus those that don’t (51%).

That “upside” would point to more positive impacts for businesses as a result of the ongoing trade war, including a sense that tariffs may present opportunities for companies to grow, increase revenues or gain market share.

Those who don’t see the upside are more concerned about tariffs having negative impacts on costs, demand and sales.

Ken Gavrity, president of Key’s commercial bank, said this split illustrates how increased tariffs, domestic and abroad, may not necessarily be a wholly good or bad phenomenon for the middle market business sector, which is how they’re often framed by some policymakers and media. 

Another important takeaway, Gavrity said, is that companies continue to want clarity and predictability with how the tariff landscape may settle long term, as constant changes in policy hinder their abilities to plan investments and make business decisions.

"If I were to play back to you the many dozens of conversations I’ve had with clients on this topic, what they would tell you is, ‘I’m OK if tariffs enter the system. I just want to make sure there is a level playing field and make sure I’m not disadvantaged.’ But they need some level of certainty,” Gavrity said. “What is the gripe at the moment? It is that it’s hard to adjust in this world when you don’t understand what stable looks like.” 

He added, “Companies generally say, give me the rules of the game, and I’ll play inside the game. But if you keep changing the rules, it is really hard for me to figure out how to win.”

The future around tariffs is murky, with some increased taxes in place and others paused.

According to the latest analysis from The Budget Lab at Yale, as of May 12, consumers face an overall average effective tariff rate of 17.8%, the highest rate since 1934.

Key periodically surveys middle market companies — biannually, at least — on how they’re feeling about and responding to economic conditions. 

But its Middle Market Sentiment Pulse Survey, conducted in May with owners and top executives of 300 of its middle market business clients (defined as companies with between $25 million and $1 billion in revenues), was specially administered in recognition of the challenges businesses are facing in today’s economic climate.

Gavrity noted that when Key surveyed business leaders in Q4 following the presidential election, 76% of respondents said they were generally optimistic about the next 12 months.

Much of that optimism was rooted in the expectation that the Trump administration would foster a strong economy and generally favorable business conditions, which could provide additional tailwinds for companies that were “coming off three years of double-digit top-line revenue growth” following restructuring efforts put in place due to the COVID outbreak, Gavrity said.

As a result of those efforts, many businesses came into 2025 with already improved operations, including more refined and optimized supply chains, which help position them to mitigate the more negative tariff impacts.

While the new survey didn’t explicitly ask the same question about optimism, it clearly shows that companies are increasingly concerned with tariffs: an overwhelming majority of 91% of respondents said that managing tariff impacts is their top priority, whether they see potential upside or not.

According to the survey, 53% of businesses report passing on increased costs primarily to consumers, and 47% said they’re passing on those increased costs to vendors.

If tariffs continue to have a prolonged impact on prices, Gavrity said a concern among businesses is how long they can pass on higher costs to customers — and how far those increases can go — before significantly pushing them away.

“There is uncertainty around how would customer behaviors change? How would industry behaviors change? Will people look for sub-products or components?,” Gavrity said. “There are so many scenarios to plan through. And those are the kinds of conversations we’re having.”

"If we stay in a world that is uncertain for a prolonged period of time, will people start to pull back?,” he added. “It is certainly possible.” 

Below is a summary of findings from Key's Middle Market Sentiment Pulse Survey.

Tariffs at the Forefront:

• 91% of companies are focused on managing tariff impacts as a top priority, showing the broad-based nature of the potential impacts.
• 61% of respondents say clarity on U.S. economic health is the most important factor for making business investment decisions.

Resilient and Forward-Thinking:

• 92% of companies view current economic policies as an opportunity to innovate their business models and restructure their organizations.
• Middle market firms are somewhat ambivalent about tariffs and the doors they might open for market expansion (49% see the upside).
• In contrast, 68% of technology companies are quite confident, likely due to the burgeoning demand for software to navigate supply chain expenses.

Strategic Adjustments in Response to Tariffs:

• 60% of companies are adjusting their supply chain strategies to manage tariff costs, the top choice among respondents. This increases to 74% for larger companies with revenues between $500 million and $1 billion. 53% are passing costs to customers and 47% to vendors.
• Among these larger companies, 88% are in the process of enhancing technology to improve supply chain visibility and 71% are broadening their supplier base to mitigate risks.

Economic Clarity and Capital Access:

• 87% of companies are actively seeking to expand their access to capital, strengthening their balance sheets and demonstrating the proactive nature of this segment.
• The top three methods for achieving this expansion are adopting technology and automation (52%), expanding equity capital (43%) and improving cash flow management (43%).