How Trump’s latest tariffs could impact small businesses

President Donald Trump‘s new tariff orders came in early April, bringing a slew of tariffs to some of the United States’ biggest trading partners, along with flat tariffs on automobile parts, steel and aluminum, oil and other imported products and raw goods. 

Trump’s tariffs have the potential to majorly impact small businesses both directly involved in the items and industries that depend on imported goods and those further down the supply chain. 

Here’s what small business owners need to know. 

Note: this article is updated from a previous version

What are tariffs?

A tariff is a tax on an imported product imposed by the government. Tariffs increase the cost of importing goods, with the tariff being paid by the importer.

As a result, importers either have to cut into their profit margins in order to pay the tax or pass the increased costs along to consumers, incentivizing either the importer or consumer to find a less expensive supplier – if one is available.

Why is Trump imposing tariffs?

Tariffs can serve a number of strategic purposes. It can serve as a negotiation method with other countries, using access (or lack thereof) to a consumer market as an incentive for another country to give trade or policy concessions.

Trump has used tariffs as a bargaining method before, threatening Colombia with import taxes and other sanctions when Colombian president Gustavo Petro blocked a plane of deported migrants from Colombia.

Another reason for tariffs is what economists call “protective” tariffs, which is done to protect the manufacturing and consumer economy of a country. For example, a country whose economy is dependent on lumber may place a tariff on imported lumber in order to preserve wages and maintain a more stable economy.

However, it may take some time for America’s production infrastructure to meet demand

“It is far from a sure thing that one purported goal of the tariffs, bringing a huge swath of production back to the United States, will be achieved,” said Mark Hamrick, senior economic analyst for Bankrate. “One can’t just pop up an auto manufacturing facility with cheap labor in a year or two, particularly when parts are sourced from so many other locations as well.”

What tariffs are being imposed?

Trump has imposed a variety of tariffs across the board, including:

• A flat 10 percent tariff on all imported products.
• A 25 percent tariff on imported steel and aluminum.
• A 25 percent tariff on imported automobile parts.
• A 25 percent tariff on all goods from countries that import Venezuelan oil.
• A 25 percent tariff on goods from Canada and Mexico, with exemptions for goods outlined in the United States-Mexico-Canada Agreement.

In addition, Trump has imposed a host of new tariff rates on the country’s trading partners, including:

• Sri Lanka: 88 percent 
• Taiwan: 64 percent
• South Africa: 60 percent
• Vietnam: 46 percent
• China: 34 percent
• India: 26 percent
• Taiwan: 32 percent
• Japan: 24 percent
• European Union: 20 percent

The impact of tariffs on small business

Small businesses will feel the impact of tariffs both directly and indirectly, as price changes from tariffs will impact everything from the cost of imported goods to the cost of operations.

Small businesses in particular will be at a disadvantage when it comes to bearing the brunt of tariffs, as they lack the negotiating power and ability to distribute costs that larger corporations have, says Tyler Higgins, managing director and supply chain specialist at global consulting firm AArete.

“Larger businesses just have more resources and more ability to disperse costs,” Higgins said. “They have a stronger ability to increase costs on consumers, because consumers don’t have alternative options from a Costco or a Walmart, instead of your local furniture shop or your local small grocery store chain.”

However, what small businesses lack in negotiating power they can make up for in flexibility, and the ability to adapt quickly to the changing global trade environment. 

Here are the impact points small businesses should know about tariffs. 

Price increases

Businesses that trade in imported products will likely see prices increase from their suppliers. 

Businesses may also see a trickle-down effect of price increases as materials and supplies such as lumber, steel, car parts and other imported products increase in price, possibly increasing the cost of operation as vehicles and construction materials increase in price. 

For example, with over one third (35.4 percent) of imported vehicles and vehicle parts coming from Mexico, according to a Bankrate analysis of Census Bureau data, car prices and insurance rates are predicted to increase. 

Even items made in the United States may not be immune to price increases, as parts and supplies needed for manufacture may be imported and come with a tariff.

 “Sadly, I fear that many Americans haven’t yet connected the dots that this tax increase is one which will be paid for by some combination of business and consumers themselves,” Hamrick says.

Changes in the supply chain

As suppliers try to remain competitive with their prices, how they source their goods – and what goods they source – will change. 

“I’ve seen a lot of [suppliers] that are heavily reliant on China, trying to evaluate Cambodia and Vietnam and these other Southeast Asian countries where maybe the tariffs are not as substantial,” Higgins said.

Suppliers may change what products they offer, depending on if they can source them from a lower-tariff country. They may also turn to more local supply points for certain goods, such as food products and perishables, depending on local availability and demand. 

Tariffs on exported goods

As other countries start to implement reciprocal tariffs on goods coming from the United Sates, businesses who rely on exports and an international customer base could feel immense pressure.

China, for example, announced 34 percent reciprocal tariffs on American goods. China biggest imports include aircraft parts, semiconductors, and soybean products, according the U.S. Census Bureau data, which may impact demand and sales for manufacturers and growers of those products.

How small businesses can weather tariffs

Whether tariffs are here to stay is still up in the air, as Trump has rescinded tariffs as a negotiating tactic before. For the remainder of the current presidential administration, however, there are some steps small businesses can take to manage the current tariff situation.

Diversify your supply chain

Knowing where your products are coming from – and which tariffs are going to impact them – will be critical in the coming months, Higgins says. Relying on only one or two suppliers puts you at risk of sudden price increases or shortages.

Changing the products you offer can help you be more resilient to tariff-induced price spikes.

“If you have aspects of their business that are not imported products, and you can diversify the cost of the tariff across a wide set of products, you might be able to bear a little bit of the cost,” Higgins says.

Talk to your suppliers

Being transparent about what your price points are, what your consumers are looking for and how you’re able to balance the increase in costs. Higgins mentioned that some suppliers have negotiated splitting tariff costs with manufacturers and importers, instead of putting the full cost on the buyer. 

Building a relationship with your supplier can give you more notice of when prices may increase, and figure out a strategy for your supply chain moving forward. 

“It’s by not making too many rash decisions, but rather by having these discussions, you can start creating more options and be able to pivot as things change,” Higgins said.

See where you can cut costs

As inflation-weary consumers may balk at sudden price increases, consider looking where else you can lower costs in your business before you change your prices. 

“We’ve seen organizations try to evaluate how they can look at all aspects of their business if their cost of goods is going to go up by 5 percent, 10 percent, 20 percent or more,” Higgins said.

You can cut costs by reducing operating hours, changing the products you offer, changing your location for one with a cheaper lease or looking at where you can become more efficient in your operations.

Network with other businesses

Working with other small businesses can help you learn about which suppliers are the cheapest, establish local supply chains and share information about consumer sentiment and reaction to price increases. 

In addition, if you use the same products or goods as other small businesses, you can see if you can team up to order items as a group and get a bulk item discount, saving you money. 

Be ready to adapt

Flexibility will be essential for businesses going forward, Higgins says. “Be able to change quickly and move, diversify quickly or build an alternative supply chain quickly.”

Look for seasonal deals or local resources that may be cheaper than importing tariffed items, and don’t be afraid to shop around for suppliers willing to share the cost burden of tariffs or find cheaper goods through other routes. 

Rely on customer loyalty

While businesses who hold off on increasing prices may have tighter margins, they can cash in on customer loyalty, Higgins says. Cutting other costs and managing your supply chain can prove to your customer base that you’re thinking of their wallets, which can help you maintain your clients if you do need to increase costs later down the line. 

“Every disruptive event creates some winners and some losers,” Higgins said. “I think if you’re on top of what’s happening, and you have the ability to have a little more flexibility in your business, you can turn this into a positive opportunity for your business, assuming you have loyal customers.”