Financial Observation: Multiple shocks compound, the U.S. falls into a "total war of attrition"

[Global Times U.S. Special Correspondent Feng Yaren, Global Times Reporter Li Xunding, Global Times Special Correspondent Ren Zhong]Editor’s Note: “Fuel surcharges are hitting small businesses in the U.S., and they are evolving into ‘Tariffs 2.0’.” On the 3rd, the U.S. newspaper The Wall Street Journal reported this under that headline. If last year’s high tariffs were still a “targeted shock” aimed at specific trade routes, then with oil prices soaring sharply due to the blockade of the Strait of Hormuz, a “full-scale battle of attrition” covering the survival bottom line of small, micro, and medium-sized enterprises across the United States has been launched again. This kind of shock is no longer limited to specific customs declarations; through the spike in energy prices, it directly anchors itself to every inch of the supply chain’s endpoints, structurally squeezing businesses and consumers across the entire U.S. economy. In the face of the overlapping impacts of multiple negative factors, has the U.S. economy’s endogenous resilience already reached a critical point? With policy tool space constrained on both fronts, how should the Federal Reserve balance the risks of inflation and slowing growth? When the consumption pillar that supports nearly 70% of the economy shows signs of fatigue, is the growth momentum of the U.S. economy at risk of stalling?

On March 31, a pedestrian walks past a gas station in the Queens district of New York. (Visual China)

Small and medium-sized businesses face a “second shock”

As international crude oil prices break through the $110 per barrel mark, thousands upon thousands of small and micro businesses in the United States find themselves thrust into the “epicenter” of energy-driven inflation triggered by geopolitical tensions. As carriers such as Federal Express and United Parcel Service pass along the ever-rising diesel prices to their customers, transportation costs for online sellers climb accordingly. For small and medium-sized businesses that have been struggling just to stay afloat under the pressure of tariffs, this undoubtedly becomes a “second blow” on top of another blow.

Over the past year, the founder of the men’s apparel brand Ash&Erie, Steven Masur, has been working to absorb roughly $500,000 in additional tariff costs, trying to keep its sale prices stable by sacrificing profit; now this small business has also encountered another unexpected cost shock: fuel prices have surged due to the conflict in the Middle East, and logistics freight has jumped significantly, further compressing the company’s already narrow space to survive.

Since the outbreak of the conflict between the U.S. and Iran, U.S. gasoline prices have surged continuously. Data from the U.S. Energy Information Administration show that, as of March 30, the price of road diesel had risen to $5.40 per gallon, up 39% from early March, with a year-over-year increase as high as 50%. Against this backdrop, Federal Express and United Parcel Service have pushed fuel surcharges up to 26% to 27% of the total shipping cost; meanwhile, e-commerce giant Amazon also announced earlier that, starting April 17, it will impose a 3.5% surcharge on delivery fees.

This chain pressure, triggered by energy fluctuations, is rapidly spreading along logistics networks to small and medium-sized businesses across the United States. Unlike large retailers that can lock in lower rates by leveraging huge shipment volumes—and even hedge risks—small merchants that lack bargaining power can only passively absorb the increased freight costs.

Taking a 2-pound e-commerce package as an example: in average shipping costs of $9.5, fuel surcharges account for about $2, an increase of roughly 40 cents compared with a month ago. For Amberjack, a men’s shoe brand that ships about 15,000 packages per month, this single change means thousands of dollars in additional monthly spending.

Masur told The Wall Street Journal: “These fuel surcharges are basically like ‘Tariffs 2.0’—they’re just as hard to predict, yet they are enough to eat into company profits.” Masur and other small business owners say that tariff issues themselves are already a huge challenge, and now the situation is making it worse. “Many people are still struggling to cope with the high tariffs the U.S. government started imposing last year; and now they have to both find a way to absorb higher fuel surcharges and work hard to avoid raising prices sharply for customers.”

Peters, CEO of Amberjack, said that last year, to offset the tariff costs, the brand raised the prices of some products by $5 to $7, but the result was strong customer resistance. “Our customers are very sensitive to prices,” Peters said. “So we’re kind of in a difficult situation right now.”

Citing a survey released by the U.S. National Small Business Association, The Washington Post reports that currently, small and medium-sized businesses across the country say that after going through a series of shocks—including the aftermath of the pandemic, high inflation, rising interest rates, concerns about a recession, the lingering effects of the Russia-Ukraine conflict, and tariff policies—they are facing a new wave of uncertainty. Business operations are extremely difficult, and more than half of small business owners believe the economic situation is worse than a year ago.

U.S. Global Trade Magazine points out that in the United States, small and micro businesses contribute nearly half of all employment positions and are the core engine behind employment growth nationwide. However, the uncertainty brought by soaring oil prices is forcing many small businesses to delay launching new projects, pause hiring new employees, and reduce investment in business growth. Given the importance of small businesses to the U.S. economy, “this retreating sentiment could have a clear negative impact on the unemployment rate and overall GDP growth.”

Rising oil prices are tantamount to “a disguised tax”

U.S. consumers are also paying the price of the Middle East conflict. According to data from the American Automobile Association, last week, the nationwide retail price of gasoline in the United States already surpassed $4 per gallon.

However, the surge in oil prices is only the first domino to fall. Dakin Vandeboer, chief investment officer of U.S.-based Vantage Life, said that for consumers, rising energy prices are no different from a form of “disguised tax”: as energy costs are passed through, prices for airfares, food groceries, transportation costs, and finished goods all rise accordingly.

This pressure has already shown up in the food sector. In late February—before the outbreak of the Middle East conflict—due to uncertainty stemming from tariff policies, the average U.S. grocery prices had risen by about 4%. After the conflict broke out, the core factors pushing food prices up—transportation, fertilizer, and shipping insurance fees—have all increased noticeably. The U.S. Department of Agriculture recently forecast that food prices could rise by about 3.6% soon. For millions of Americans who have already endured years of rising food prices, this is undoubtedly another blow on top of an already difficult situation.

The last time nationwide U.S. oil prices touched the $4 mark was in 2022. At that time, the Russia-Ukraine conflict was pushing the energy market toward the brink of crisis, and inflation kept climbing. The Wall Street Journal analysis pointed out that, unlike in 2022, consumers have already exhausted the previous “savings buffer,” and wage growth has also slowed.

Fernando Lozano, an economics professor at Pomona College in the United States, said that due to multiple policy changes—economic vulnerability brought by import tariffs, a government shutdown, and continuously rising healthcare costs—consumers’ “patience has been stretched to the breaking point,” leaving almost no tolerance for newly imposed fees. A new analysis by Oxford Economics predicts that 2026 will be the slowest year of annual consumption growth in the United States since 2013 (excluding the impact of the pandemic).

In addition, Vandeboer said that unlike past shocks to the economic system (such as the Great Recession or the pandemic), “the tools the government can use to mitigate the blows to businesses and consumers will be even more limited.” The fiscal stimulus measures originally intended to promote growth this spring and drive employment have fallen into a difficult tug-of-war with oil prices. Economists at the Federal Reserve Bank of St. Louis estimate that if oil prices continue to stay at the current level, the rise in fuel prices over the past month would offset 10% to 50% of the benefits from the tax cuts implemented by the government each quarter. This means that every $1 flowing into the gas tank corresponds to a $1 loss for the retail, dining, and services sectors—industries that account for the overwhelming majority of employment share in the United States.

Meanwhile, the many uncertainties brought by the war have also put the Federal Reserve in a dilemma. Last week, the OECD raised its forecast for the 2026 U.S. inflation rate from 3% to 4.2%, significantly higher than the Federal Reserve’s 2.7% forecast, because the surge in oil prices is affecting the economy.

Dailip Singh, chief global economist at financial giant PGIM, analyzed that the escalation in the Middle East continues to constrain the Federal Reserve’s policy space. In dealing with inflation risks arising from supply chain disruptions, the Federal Reserve will find it harder to offset the pressure of economic slowdown through rate cuts.

**Economists: **Cut U.S. GDP growth expectations

As the conflict intensifies, concerns about inflation have also grown. Data released by the University of Michigan shows that in March, U.S. consumer confidence fell sharply by 6% to 53.3, reaching the lowest point in three months. At the same time, surveys by institutions such as Omnisend, JDPower, and YouGov all show that Americans are cutting back spending on non-essential items.

Compared with many other countries, the U.S. economy relies more on consumer spending—nearly 2/3 of economic activity is driven by consumption. Dakin Vandeboer, chief investment officer at Vantage Life, said that where these funds go will determine the direction of the economy: “If the conflict lasts longer, typically consumers cut spending and reduce consumption of non-essential goods.” Vandeboer added that this will slow economic growth, hit consumption, and the effects will become visible quickly. U.S. magazine Forbes commented that, given that personal consumption expenditures account for nearly 70% of the U.S. GDP, the spending cutback shown by U.S. consumers in March is “undoubtedly a warning to everyone: unless the conflict can end as soon as possible, the outlook for the U.S. economy is not optimistic.”

Experts believe that although compared with the oil crisis of the 1970s, the United States’ dependence on imported oil has been reduced significantly, this buffer effect can only mitigate the shock and cannot completely offset it. Hermann Neuworth, president of IFS Energy and Resources, said: “What we are currently experiencing is not a single price shock. It is the result of the largest-scale energy supply disruption in modern history, compounded by six years of structural fluctuations. This will subject all fuel-related industries—actually, all industries—to persistent and intensifying pressure from compounded cost factors.”

However, an analysis by Harvard Business Review points out that in the past few years, the market has repeatedly underestimated the resilience of the U.S. economy. Whether it was inflation, rate hikes, or tariffs—these cyclical risks may have brought uncertainty, but they did not interrupt economic expansion. At the same time, the analysis also noted that with the United States entering the sixth year of post-pandemic expansion, after multiple setbacks, the economy has already shown signs of weariness. The core of current risk is not a single shock, but the combined resonance of multiple negative factors. Although the U.S. economy previously absorbed pressure from high interest rates and tariffs and did not fall into a recession; but as “a single shock that can be digested” evolves into “the overlay of multiple shocks that cannot be digested,” economic risks rise significantly. “If high prices last longer, they will completely strip away the underlying momentum supporting the U.S. economy.”

Against this backdrop, some economists have already lowered their expectations for U.S. economic growth this year. Tiffany Wardling, managing director at Pinch Holding, said that based on the assumption that the conflict can be rapidly resolved, Pinch has lowered its previous growth forecast for the United States by 0.3 to 0.4 percentage points. At the start of this year, KPMG’s chief economist Suongke had expected U.S. GDP to grow 2.6% in 2026, but the current estimate puts growth at only 1%—assuming the Strait of Hormuz can be reopened soon.

On April 6, Liu Chunsheng, associate professor at the School of International Economics and Trade of the Central University of Finance and Economics, said in an interview with a reporter from The Global Times that the core premise for the resilience of the U.S. economy is that shocks can be digested one by one, but the inflation pressure brought by the Middle East conflict combined with long-term negative factors has completely broken that foundation. When the conflict is controllable in the short term, consumers may be able to rely on a savings buffer; if it continues to ferment, it will further squeeze consumption and drag down growth. With consumption slowing, costs remaining high across the entire industry chain, and multiple risks resonating together, the probability that U.S. economic resilience fails has risen sharply. If the conflict cannot be quickly brought under control, the risk of a U.S. recession may be hard to avoid.