The latest Institute for Supply Management ISM Report on Business revealed a notable deceleration in the manufacturing and services sectors, with rising concerns over tariffs’ impact.

A seismic shift in international trade has been unleashed last week as t he Trump administration’s sweeping new tariffs took center stage. The tariffs sparked immediate retaliation and cast a pall over global economic prospects.

These developments paint a complex picture of an economy grappling with protectionist headwinds and a potentially softening services engine, the mainstay of U.S. economic growth.

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Manufacturing and supply chains brace for impact

The Services ISM report provides insight into the broader economy’s potential challenges, including the manufacturing sector, which depends on intricately linked supply chains.

The March Services PMI and Manufacturing PMI compare, with the latter contracting 49.0%, further underscoring potential headwinds in the goods-producing sector.

The widespread reciprocal tariffs on numerous countries, particularly those in Southeast Asia that are integral to electronics supply chains, would disrupt the flow of components and finished goods, potentially leading to higher consumer prices.

While some sectors, like semiconductors, were reportedly exempted from reciprocal tariffs, the broader disruption necessitates that companies reconsider their sourcing and production strategies, which could be “slow, expensive, and challenging.”

Services sector slows amid tariffs

omestically, the March 2025 Services ISM Report On Business indicated a cooling in the services sector, which has been a significant driver of economic expansion.

The Services PMI registered 50.8% in March, a notable 2.7% point lower than the February reading of 53.5%. While a reading above 50% still signifies expansion, this marks the lowest reading since June 2024.

Notably, three of the four subindexes that directly factor into the Services PMI—New Orders, Employment, and Supplier Deliveries—saw drops in their readings. The Employment Index, in particular, contracted for the first time in six months, registering a significant decrease of 7.7% points to 46.2%.

Of particular relevance to the new tariff regime, the report highlighted a “significant increase this month in the number of respondents reporting cost increases due to tariff activity.”

Voices from the construction sector noted they were “starting to see the effect of the aluminum tariff,” these costs were expected to be passed on to customers.

In the information technology industry, tariffs have caused “havoc with the supply chain and deliveries” in the groundwood paper market.

The utilities sector reported expecting price increases soon due to tariffs on several commodity-based contracts.

Despite these growing concerns, the report indicated a “close balance in near-term sentiment, between panelists with good outlooks and those seeing or expecting declines.”

Industry agreements

Last week, specific manufacturing and supply chain news emerged amid these broader trade and economic developments.

TE Connectivity completed its acquisition of Richards Manufacturing, a North American leader in utility grid products, signaling strategic moves within the energy infrastructure sector to capitalize on grid replacement and upgrade cycles.

Additionally, BrainChip announced a partnership with RTX’s Raytheon to service a contract for neuromorphic radar signaling processing for the Air Force Research Laboratory, highlighting advancements in AI applications within the defense industry.

“Radar signaling processing will be implemented on ever-smaller mobile platforms, so minimizing system SWaP-C is critical,” said Sean Hehir, CEO of BrainChip. “This improved radar signaling performance per watt for the Air Force Research Laboratory showcases how neuromorphic computing can achieve significant benefits in the most mission-critical use cases.”

These developments, while specific, occur within the context of a global trade environment increasingly shaped by protectionist policies and potential economic slowdown.

Uncertain trajectory for global trade

The latest ISM report indicates that the confluence of escalating global trade tensions ignited by the new U.S. tariffs and a slowing services sector creates a climate of significant economic uncertainty.

“There has been a significant increase this month in the number of respondents reporting cost increases due to tariff activity,” said Steve Miller, chair of the Institute for Supply Management Services Business Survey Committee. “Despite an increase in comments on tariff impacts and continuing concerns over potential tariffs and declining governmental spending, there was a close balance in near-term sentiment, between panelists with good outlooks and those seeing or expecting declines.”

China’s robust retaliatory measures demonstrate a firm stance against the Trump administration’s trade policies, raising the specter of a prolonged and damaging trade war. The concerns voiced by service sector respondents regarding rising costs and potential future impacts of tariffs suggest that these policies could have a tangible effect on domestic economic activity.

As the world grapples with this new era of trade protectionism, the long-term consequences for global growth, inflation, and the intricate web of international supply chains remain highly fluid and warrant close observation.

By: DocMemory
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