Maryland’s business community endured turbulence in 2025 from rising costs, federal workforce reductions and sweeping tariff changes. Nonetheless, many firms remain cautiously optimistic about the months ahead. This, according to a new statewide survey assessing the business climate by the Center for Global Business (CGB) at the University of Maryland’s Robert H. Smith School of Business.
Research Professor and CGB Academic Director Kislaya Prasad led the project designed to “create a resource that can be used by policymakers, businesses and the public to guide decision-making.”
Prasad and a CGB team gathered responses from 92 Maryland businesses across sectors ranging from technology and consulting to construction and real estate. The findings, in a report titled “The Business Climate in Maryland and the Impact of Federal Policy Changes on Maryland Businesses,” show that “while current conditions are widely viewed as unfavorable, there is guarded hope for improvement in revenues, demand and employment in early 2026."
About half of the respondents reported that their firms underperformed in 2025 compared with the same period in 2024, while just under 30 percent saw improvement. Rising costs were most significant, with nearly 80 percent of firms reporting higher expenses, says Prasad. “These cost pressures translated to higher prices for consumers—a trend expected to continue.”
Employment also declined. Revenues and demand followed a similar pattern, reflecting the broader slowdown. However, capital expenditures bucked the trend: investment in equipment, software and infrastructure rose slightly and is expected to grow further in the coming months. “This suggests that businesses are still positioning themselves for long-term growth despite short-term headwinds,” Prasad says.
Long-term expectations are more positive, he adds. Firms anticipate improvements in revenue, demand and hiring over the next six months. “This reflects cautious optimism that the worst of 2025’s disruptions may be easing.”
Federal Workforce Cuts
Federal policy changes significantly strained Maryland businesses in 2025. About 45 percent of firms reported adverse impacts from reductions in force (RIFs)—or the elimination of federal jobs. Another 36% cited difficulties stemming from changes in procurement and contracting policies.
These effects were particularly severe for companies with substantial federal exposure. Respondents described delayed payments, administrative disruptions caused by staffing cuts, and the termination of programs supporting minority-owned businesses and environmental initiatives. “Given Maryland’s large population of federal employees and its reliance on federal contracting, these changes reverberated widely across the state’s economy,” Prasad says.
Tariffs
The introduction of a new tariff regime added another layer of difficulty. The average effective tariff rate rose to nearly 18 percent, up from just 2 percent at the start of the year. Tariffs were especially steep on imports from China (40 percent) and on key commodities like steel, aluminum and automobiles.
These tariffs increased the cost of imported inputs and reduced supply chain reliability. Nearly one in four firms reported making adjustments to their sourcing strategies. This included shifting from international to domestic suppliers, switching sourcing countries or stockpiling critical materials. While a small number of firms noted benefits such as reduced foreign competition, Prasad says the overall impact was negative.
Business Climate Viewed as Unfavorable
Perhaps most striking, Prasad says, is that nearly 60 percent of respondents rated Maryland’s overall business climate as unfavorable. Key factors cited were high taxes, elevated operating costs and housing affordability. These issues, according to the respondents, continue to weigh heavily on the state’s competitiveness.
But at the same time, businesses acknowledged Maryland’s strengths. A skilled talent pool and proximity to the federal government were consistently identified as key advantages. These assets remain critical for industries such as technology, consulting and defense contracting, which rely on specialized expertise and federal partnerships.
“Still, the unfavorable ratings raise concerns about Maryland’s ability to retain and attract businesses,” Prasad says. “Some respondents considered relocating to other states, underscoring the importance of addressing structural challenges.”
Respondents: A Quick Profile
While the survey sample reflects the diversity of Maryland’s business community, it is weighted toward small, locally headquartered firms, Prasad notes. Nearly 80 percent of respondents employ fewer than 100 workers, and 89 percent are Maryland-headquartered. About one-quarter of these businesses operate exclusively within the state.
Ownership diversity was also notable, Prasad says. Approximately 20 percent of firms are majority women-owned, and a similar share are minority-owned. International exposure was limited, with 61.5 percent reporting no international revenues and just over 40 percent reporting no imported inputs. However, about one-third of firms import more than 10 percent of their inputs, leaving them vulnerable to tariff-related disruptions.
Federal exposure was high. Just over 16 percent of respondents reported no revenues from federal contracts, while nearly one-quarter derived less than 10 percent. The remainder reported higher levels of reliance, highlighting the state’s deep economic ties to federal spending.
Outlook: Challenges Persist, But Hope Remains
Overall, the 2025 survey reveals a business community under pressure from rising costs, federal workforce reductions and tariff-driven supply chain disruptions. Yet amid these challenges, many firms are cautiously optimistic about the near future. Expectations for revenue, demand, and hiring are positive, and capital investment continues to grow.
“Maryland’s strengths—its talent base and proximity to Washington, D.C.—remain valuable assets,” Prasad says. “But structural challenges such as high taxes, operating costs and housing affordability continue to weigh on sentiment.” For policymakers, he adds, “the survey offers a clear message: While businesses see reasons for hope, they also need relief from systemic burdens to thrive in the years ahead.”
Additional contributors to this study: Smith graduate students Vladimir Martirosyan (Information Systems, ’25) and Fiaz Ahmad (Supply Chain Management, ‘25), plus CGB Executive Director Rebecca Bellinger and CGB Associate Director Marina Augoustidis, Support also came from the U.S. Department of Education through a Title VI grant under the CIBE program.
View the entire report, “The Business Climate in Maryland and the Impact of Federal Policy Changes on Maryland Businesses,” and additional CGB survey reports.
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About the University of Maryland's Robert H. Smith School of Business
The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.