JPMorgan analysis finds Trump’s tariffs are working on China—at a huge cost to small American business

The report, titled “Tracking international payments: How are midsize firms reacting to tariffs?” paints a picture of a business sector that is bending but not breaking under historic pressure. According to JPMorgan banking data on financial outflows of firms with revenues between $10 million and $1 billion, the cost of importing goods has skyrocketed—and American companies are bearing the brunt.

While these companies scramble for alternative sources to Chinese manufacturing, they’re paying a big price on imports. Following the implementation of tariff rate increases and new universal tariffs in April 2025, monthly tariff payments by these midsize firms have tripled compared to early 2025 levels.

Decoupling is Happening

If the primary objective of the trade policy was to reduce American reliance on Chinese manufacturing, the banking giant’s data suggests the strategy is working. Outflows from midsize U.S. firms to China have dropped by approximately 20% since 2024.

However, this retreat from China has not signaled a retreat from the global economy. Instead of reshoring operations entirely, American businesses appear to be engaging in a costly game of musical chairs.

The report finds that while payments to China fell, outflows to other regions—specifically Southeast Asia, Japan, and India—have accelerated. This evidence points to “import substitution,” where U.S. firms rush to find alternative suppliers in friendly nations to bypass the steepest levies placed on Beijing.

The “squeeze” on the Middle Market

The JPMorgan researchers warn that while trade volumes have remained stable, the financial health of these companies may be at risk. Midsize firms are uniquely vulnerable; they are often too large to fly under the regulatory radar but “lack the scale to absorb sustained cost increases” compared to massive multinational corporations.

The burden of these new taxes has been particularly uneven. While the “universal tariffs” announced in April 2025 did capture new firms that previously paid no duties, the JPMorgan analysis found that the vast majority of the surge in government revenue came from firms that were already paying tariffs. Essentially, the policy has intensified the financial pressure on existing importers rather than spreading the cost widely across new players.

Furthermore, the removal of the de minimis exemption in 2025—which previously allowed shipments under $800 to enter duty-free—likely contributed to the rising costs, closing a loophole many smaller importers relied upon.

Resilience or Delayed Pain?

Despite the tripled tax bills, international activity by these firms did not collapse. International payments remained stable throughout 2025, only moderately lagging behind the growth of domestic payments.

The report concludes that midsize firms are adapting through “gradual reallocation” rather than an immediate withdrawal from global markets. However, the researchers caution that payment stability might mask the true damage. Because supply relationships take years to build, many firms may be absorbing the higher costs in the short term while desperately seeking cheaper alternatives. As the report notes, the full “broader effects of trade policy changes may only become apparent with a significant lag”.

For now, the data is clear: midsize American business is successfully leaving China, but it is paying a historic premium to do so.

For this story, Fortune journalists used generative AI as a research tool. An editor verified the accuracy of the information before publishing.