The impression of tariffs is beginning to take impact and will end in a workforce decline in 2026

President Donald Trump’s tariffs, aimed at relocating American jobs lost to overseas production, could instead lead to a decline in domestic employment, according to recent statements from business leaders and economic researchers.

With the job market already in retreat in a climate devoid of layoffs and hiring, concerns are growing that tariffs on U.S. imports will increase operating costs and force companies to start cutting jobs.

For example, respondents to the Institute for Supply Management’s November survey expressed increased levels of concern about factory conditions.

“We are beginning to implement more permanent changes due to the rate environment,” wrote a transportation equipment manager. “This includes workforce reductions, new shareholder guidance and the development of additional offshore manufacturing that would otherwise have been destined for U.S. export.”

The ISM surveys identify respondents not by name, but by industry.

Similar comments were found elsewhere in the report, which showed the ISM manufacturing index trending further into the range, indicating worsening business conditions. The headline figure of 48.2% represents the proportion of companies reporting expansion, so anything below 50% indicates contraction.

The survey’s employment indicator fell 2 points to 44%, the lowest reading since August and in line with the gradual but persistent trend of weakening in the labor market.

There were further signs that the labor market situation will darken by 2026.

Trump has been a strong supporter of energy exploration and increased use of fossil fuels. However, an ISM respondent from the oil and coal industry reported: “There are no major changes at the moment, but we expect big changes in cash flow and headcount by 2026. The company has sold a large portion of the business that generated free cash, while offering voluntary severance packages to everyone.”

An executive in the electrical appliances, home appliances and components business said the tariffs led to a tougher business climate than during the Covid crisis.

“Conditions are more difficult than during the coronavirus pandemic in terms of uncertainty in the supply chain,” the respondent said.

Conflicting signals

To be sure, general economic conditions remain fairly stable.

According to the Atlanta Federal Reserve, gross domestic product recorded an annual growth rate of 3.9% in the third quarter. Additionally, hiring was stronger than expected in September, with nonfarm payrolls increasing by 119,000, although there are signs that major employers are making cuts. Amazon, for example, announced in late October that it would cut up to 30,000 jobs, joining cuts made by other major employers.

A report released Tuesday by the 38-nation Organization for Economic Co-operation and Development indicated that the tariffs are not yet weighing on the global economy, but warned that the full impact could be yet to come.

“The impact of higher tariffs has not yet been fully felt in the U.S. economy,” said the report from the Paris-based OECD. The report noted a “sharp decline in the value of goods imported into the U.S. that are subject to tariffs,” suggesting that tariffs will impact demand and continue to weigh on trade volumes if the announced tariffs take full effect.

Such risks pose challenges for the labor market in the coming year.

A Federal Reserve economic report last week also noted that employment had “declined slightly” over the past seven weeks, while manufacturers reported that “tariffs and tariff uncertainty remain a headwind.”

The Cleveland Fed’s commentary reflected both sides of the tariff coin: “A large retailer’s average costs had increased about 20 percent year-over-year due to the tariffs, and it was trying to figure out how it would distribute those increases. In contrast, another large retailer did not anticipate further cost increases and indicated that the impact of the tariffs had stabilized.”