S&P Global: Supply Chain Costs Fuel $1.2tn Profit Hit

S&P Global has released its latest research paper on the global state of business economics. 

Written by experts Drew Bowers and Daniel J. Sandberg, the paper explores the ripple effect through supply chains and how this can cause major profit losses.

Examining risk exposure and tariff outcomes, S&P Global looks at the state of business in 2025.

Financial rundown

According to data forecasts from more than 15,000 sell-side analysts across approximately 9,000 public companies, there has been a major financial shape-up.

Throughout 2025, there has been a major global margin compression, with an estimated contraction of 64 basis points.

This translates to US$907bn in lost profit. This has occurred thanks to a fiscal revenue forecasts rise of US$600bn, but an earnings expectation fall of US$300bn. 

S&P integrated its Global Purchasing Manager Index (PMI) data to examine price inflation and real output. The company has found that there is higher inflation expectations alongside weaker output expectations for 2025. 

Due to this, some of the cost burden - approximately US$592bn - is being passed onto consumers to make up for this loss. This means higher prices across products. The remaining third - US$315bn - is taken on by the companies through lower earnings.

An approximate US$155bn is added for the public firms not covered by this report and US$123bn for private equity and venture capital-backed firms. This takes the total incremental cost to US$1.2 trillion in 2025.

There are many contributing factors to this loss, including tariffs and large investments.

The main issues

Supply chain costs

Supply chains are vital to a business' success, but an extra cost in one area has a dramatic knock-on effect.

A company will absorb the shock of its partner - or its strength - which means, the companies with weaker supply chains are falling behind those which have formed resilient supply chains with strong suppliers.

Supply chain resilience has been particularly important throughout 2025 with the constant trade shifts and geopolitical tension. 

De minimis 

The de minimis exemption had been vital to global trade, keeping prices low by allowing billions of dollars worth of low-value parcels go into the US tax-free.

When US President Trump ended this exemption as part of his 'war on tariffs', the effect was a major shock to businesses. It is affecting every part of the supply chain's readings, including shipping data, earnings reports and executive commentary. 

Tariffs

With the shifting surrounding tariff regulations, many companies have moved from 'overcoming' to 'mitigation'. They are adapting to these higher costs by repricing and reinvesting, rather than reacting to the prices. 

Companies that were more neutral or optimistic about the affects of tariffs saw improved margin expectations or greater investments, as opposed to those who treated tariffs as existential risks.

"Tariff actions in 2025 are reshaping margins, guidance, and sentiment—but their effects are far from uniform," says Daniel Sandberg, Managing Director, Head of QRS at S&P Global Market Intelligence.

"Our latest research shows how shocks cascade differently across sectors and supply chains, and why resilient networks matter more than ever."

Tech investment

The companies that are most neutral on AI and tech investments see a larger reward from analysts.

This is because the most optimistic firms are making large investments into AI, which will pay off in the future. However, the big initial cost is weighing on short-term margins.

Looking ahead

Despite the major increase in expenses, S&P predicts this will be a momentary issue, with loss margins narrowing over times. As 2025 has been very turbulent, some companies have still not adjusted their long-term outlooks, meaning predictions have been incorrect.

Moreover, analysts predict the tariff adaption strategies will become more effective, with supply chain realignment in the near future. Regional performances are supporting the interpretation of resilience and mitigation strategies proving successful - Canada's resilient auto and aerospace sectors and its trade alignment under USMCA has given it strength throughout 2025. 

How business adapt to technology and reshaped global supply chains will determine how much they can recover profit margins over the next few years.