- December 10, 2025
- By Gregory Muraski
Despite facing rising costs, federal workforce reductions and sweeping tariff changes in 2025, Maryland’s business community is cautiously optimistic about the months ahead, according to a new statewide survey from the University of Maryland’s Robert H. Smith School of Business.
Research Professor and Center for Global Business (CGB) Academic Director Kislaya Prasad and a CGB team gathered responses from 92 Maryland businesses across sectors ranging from technology and consulting to construction and real estate.
About half of the respondents reported that their firms underperformed in 2025 compared with the same period in 2024, while just under 30% saw improvement. Nearly 80% of firms reported higher expenses. “These cost pressures translated to higher prices for consumers—a trend expected to continue,” Prasad said.
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 said.
Long-term expectations are more positive, he added. Firms anticipate improvements in revenue, demand and hiring over the next six months.
Federal Workforce Cuts
Federal policy changes significantly strained Maryland businesses in 2025. About 45% of firms reported adverse impacts from reductions in force (RIFs) that eliminated federal jobs. Another 36% cited difficulties from changes in procurement and contracting policies.
Companies with substantial business ties to the federal government 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 said.
Tariffs
The introduction of a new tariff regime added another layer of difficulty. The average effective tariff rate rose to nearly 18%, up from just 2%v at the start of the year. Tariffs were especially steep on imports from China (40%) and on key commodities like steel, aluminum and automobiles.
These tariffs increased the cost of imported goods and reduced supply chain reliability. Nearly one in four firms reported adjusting their sourcing strategies, such as 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 said the overall impact was negative.
Business Climate Viewed as Unfavorable
Perhaps most striking, Prasad said, is that nearly 60% of respondents rated Maryland’s overall business climate as unfavorable. Key factors cited were high taxes, elevated operating costs and housing affordability.
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 said. “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 was weighted toward small, locally headquartered firms, Prasad noted. Nearly 80% of respondents employ fewer than 100 workers, and 89% are Maryland-headquartered. About one-quarter of these businesses operate exclusively within the state.
Ownership diversity was also notable, Prasad said. Approximately 20% of firms are majority women-owned, and a similar share are minority-owned. International exposure was limited, with 61.5% reporting no international revenues and just over 40% reporting no imported inputs. However, about one-third of firms import more than 10% of their inputs, leaving them vulnerable to tariff-related disruptions.
Federal exposure was high. Just over 16% of respondents reported no revenues from federal contracts, while nearly one-quarter derived less than 10%. The remainder reported higher levels of reliance, highlighting the state’s deep economic ties to federal spending.
“Maryland’s strengths—its talent base and proximity to Washington, D.C.—remain valuable assets,” Prasad said. “But structural challenges such as high taxes, operating costs and housing affordability continue to weigh on sentiment.” For policymakers, he added, “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 included Vladimir Martirosyan M.S. ’25 and Fiaz Ahmad M.S. ’25 and CGB Executive Director Rebecca Bellinger and Associate Director Marina Augoustidis. Support also came from the U.S. Department of Education through a Title VI grant under the CIBE program.