How Tariffs Are Reshaping the Economy and FinTech Industry
In recent months, the global economy has been significantly impacted by tariffs.
These trade barriers, intended to protect domestic industries, have had far-reaching consequences across numerous sectors. The financial technology (FinTech) industry is one area experiencing substantial impacts due to shifts in policy and countermeasures. With the US increasing tariffs on various imports, market turmoil and concerns of a recession are on the rise.
Let’s explore the multifaceted effects of tariffs on the broader economy, their specific influence on public FinTech companies, and share an outlook on how the financial services industry may fare in 2025.
The Economic Impact of Tariffs
At the most basic level, tariffs are taxes imposed on imported goods with the goal of making foreign products less competitive (compared to domestic ones).
Despite the intention of bolstering local/domestic activity, the overall implications to the global economy are far-reaching and difficult to measure within a short time span.
Inflationary Pressures and Consumer Costs
The immediate effect of tariffs (increasing the cost of imported goods) directly leads to higher prices for consumers.
Consumers pay a higher amount for the same product/good — the inflation of prices weakens the purchasing power of buyers. More dollars are needed to buy the same amount of groceries, medicine, gas, or pay for utilities.
As inflationary pressures creep up, consumers become more conservative with spend and focus on savings. Those unable to save must change purchase habits to avoid spending above their means on the necessities.
Lack of spend from consumers also impacts businesses who focus on selling products/services that are part of discretionary spend (such as experiences or luxury goods).
Impact on Employment and Industry Sectors
Tariffs can also influence employment across various sectors.
Industries reliant on imported materials may face higher production costs, potentially leading to reduced profit margins and workforce downsizing.
A report highlighted that sectors such as manufacturing, construction, agriculture, retail, and hospitality were particularly vulnerable to the adverse effects of tariffs.
Retaliatory Measures and Global Trade Relations
The imposition of tariffs often leads to retaliatory measures from affected countries, escalating into trade wars that can disrupt global supply chains.
For example, following the U.S. tariffs, China responded with its own set of tariffs, affecting a wide range of industries and exacerbating tensions between the two economic powerhouses.
Tariffs and Public FinTechs
The FinTech sector, which relied heavily on technology & partnerships with banks & institutions, has been considerably affected by changes in tariff policies.
Increased Operational Costs
The majority of FinTech firms depend on hardware and infrastructure resources that are sourced internationally.
Tariffs on these types of imports increase operational costs.
For public companies (e.g. PayPal, American Express, Affirm), stock prices have declined in response to the associated expense of new tariff announcements.
Investor Sentiment and Market Volatility
The back & forth in the headlines has spilled over into the broader market — creating volatility and negatively impacting investor sentiment across financial services companies.
Early announcements had caused the S&P 500 to drop by 10%+ — in early Q2, we’ve seen a slight recovery; however, unease still remains as we reach the mid-point of 2025.
Strategic Shifts and Adaptation
Fintechs are responding by taking an active approach to preventing business disruption with early exploration of alternative vendors/supplier networks.
De-risking single dependencies (on an international partner or market) is top of mind for all companies anticipating headwinds from trade policy changes.
Where does FinTech go from here?
Tariffs presented an unexpected challenge for the financial services industry at the start of the year.
To make gains in 2025, fintechs must navigate a dynamic landscape impacted by shifts in policies (at home & abroad) and countermeasures from regulators (in response to those shifts).
Regulatory Action
Regulatory agencies may propose changes aimed at insulating consumers from market fluctuations and negative impact from tariff wars.
Agencies such as the Consumer Financial Protection Bureau (CFPB) can instill new policies that improve consumer protections for FinTech platforms. The challenge comes down to which agencies will still be active based on the changes to government-funded sectors.
Innovation & Digital Transformation
A prioritized effort on efficiency in operations is spreading throughout the industry. Operating lean (when it comes to staffing and resources), leveraging artificial intelligence (AI) to automate OR improve business functions are possible through innovative tech solutions.
Besides AI, blockchain is also transforming how public & private companies manage transactions and workflows. The boost from technological innovation and transformation efforts can counterbalance higher costs to do business this year.
Global Economic Dynamics
The most critical ‘unknown’ lies with how major economies challenging one another with policy changes will influence the industry in the short & medium term.
Currency fluctuation, international transaction fees, changes in tax treatment — all have a financial impact that the industry needs to prepare for.
Outlook
Even though aggressive changes in trade policy for 2025 were unexpected, the financial services industry is known for its resilience in maneuvering through a changing landscape over the last decade.
Leveraging the latest in tech innovation and the ability to quickly adapt, fintechs will be ready to respond accordingly to economic changes that affect their business.
The companies that are most proactive when it comes to business continuity risk will be able to maintain (or expand) their growth trajectory this year.
