How Tariffs Are Affecting Your Favorite Small Businesses

If you’ve lost track of what’s going on with tariffs, we don’t blame you — it's been a whirlwind.

Currently, the U.S. has a 10% baseline tariff on U.S. imports, and the Trump administration has layered on additional tariffs for specific goods like automobiles, steel and aluminum. In early August, the White House expanded country-specific tariffs ranging from 15% to over 40%, hitting nations like Laos, Myanmar, India, and parts of Europe and Asia. China still faces a 30% tariff, now extended through mid-November under a temporary truce, and India is contending with a 50% levy amid stalled trade talks.

As it stands, small businesses are bearing the brunt of the impact. Larger companies typically have procurement teams — designated departments tasked with sourcing supplies and identifying backup options when tariffs emerge.

Small businesses generally do not, and are disproportionately vulnerable to economic turbulence as a result, according to Federal Reserve Governor Michael Barr.

"Potential disruptions to supply chains and distribution networks are particularly acute for small businesses, which are less diversified, less able to access credit, and hence more vulnerable to adverse shocks," Barr said at a small business credit symposium last month.

Now, as President Donald Trump's threats of additional tariffs loom, many small business owners are nervously monitoring developments, studying up on supply chain alternatives and making lightning fast adjustments to mitigate the impact of higher levies on imports.

"The rules have changed faster than people can digest them," says Mark Valentino, head of business banking at Citizens Bank. "Whenever you have a lack of clarity, you have an element of chaos that ensues."

According to Valentino, all this uncertainty makes it nearly impossible for small businesses to plan even six months into the future. Here's how this challenge is playing out across three distinct types of small businesses.

E-commerce brands

The impact of tariffs varies significantly between industries. In the long run, some brands selling American-made goods could benefit from the Trump administration’s tariff policy if the goal to bolster domestic manufacturing and help U.S. companies compete with foreign producers that face less overhead (i.e. lower labor costs) indeed comes to fruition.

But any e-commerce brand that rely on imported materials and global supply chains is vulnerable. Think of an independent clothing designer who sources her fabric from India, a jewelry maker who gets his gemstones from Australia or the many artisanal coffee roasters who rely on fair-trade beans from abroad. These material costs make up of a significant share of their balance sheets, and the impact of tariffs could be sudden — and severe. Companies that import low-cost goods from Asian countries are especially concerned.

While some experts and business leaders question if the administration would actually levy large long-term, high tariffs on our neighboring countries (especially considering the importance of the United States-Mexico-Canada Agreement), tariffs on some Asian countries are more likely to remain in place at higher rates. Notably, the U.S. has a tariff rate of about 30% for many imports from China. That means many e-commerce businesses, for example, drop-shippers and related businesses, could be in trouble.

Mom and pop shops

What about locally-owned businesses like furniture stores, restaurants, bookstores and bike shops? Tariffs could indeed give some of these small businesses an edge over foreign competitors and businesses that rely on imports, provided they primarily sell domestically-made products and don't depend heavily on imported goods themselves.

However, even small businesses that don't use foreign goods could face repercussions vis-à-vis the financial pressure that tariffs put on consumers.

"What we're really worried about is the potential consumer slowdown in spending, which will impact all small businesses," Valentino says, adding that several restaurateurs he works with are already seeing this.

Businesses that do use imported items (everything from restaurant equipment to office supplies) will likely see higher costs, if they haven't already. It's been widely reported that companies including big names like Amazon and Apple were moving up purchases and stockpiling some inventory in anticipation of tariffs. However, small businesses may not have the funds or access to credit to support major stockpiling. In a May report, Bank of America analysts wrote that "there is little evidence of small firms rushing to increase inventories overall." And at some point, any extra inventory they were able to bring in will be depleted.

Service shops

While service businesses are not as susceptible to tariffs, the potential impact is still notable. A local hair salon, for example, primarily sells haircuts, not imported goods. But the shampoos, conditioners and pomades they use in their day-to-day operations — and sometimes offer for sale — could be subject to tariffs. Same goes for equipment purchases like hair dryers and salon furniture, which are often manufactured overseas.

Some service shops face even steeper challenges. Take auto shops — all the parts they import for car repairs are currently being tariffed at a 25% rate, barring specific objections. This creates a dilemma for shop owners: Do you raise prices and risk losing customers, or absorb the higher costs and accept lower profits?

"Broadly and generally speaking, small businesses don’t have a tremendous amount of margin to eat in a situation like this," says Ben Johnston, chief operating officer at Kapitus, a small business financing company. "Your typical small business may have somewhere between 10 and 20% overall margin in a product."

While some businesses can try to "cushion the customer" from tariffs to try to maintain or grow market share, it's unrealistic to expect a small business to fully absorb the extra costs when you're talking about "30%, 40%, 50%, 125%, 150% tariffs, all of which are real numbers that have been instituted at some point over the last few months."

In that case, it's basically inevitable that costs will be passed on to the consumer, he says.

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