Small and midsize businesses in the United States are being hit hard by a tariff war triggered by U.S. President Donald Trump. Import expenses have surged because of high tariffs, but unlike large companies, small businesses lack the capacity to absorb them.
On the 29th (local time), the New York Times (NYT) reported, "Many large companies are absorbing the high tariffs implemented since last month without raising prices, but more and more small businesses are being pushed to the brink." According to the NYT, small businesses not only lacked the funds or storage capacity to stock up before the tariff hikes, but they are also reluctant to raise prices for fear of losing customers.
Brandon Mills, CEO of Total Promotion Company, which produces promotional items and custom apparel and goods in Las Vegas, Nevada, said, "We import most of our corporate apparel and printing materials from China, and as the tariff burden has increased significantly, margins have nearly disappeared on some orders," adding, "I even wonder if it would have been better not to take the orders at all." To cover the increased expenses, he laid off one of his seven employees.
Lori Andre, head of Lori's Shoes, which operates three stores in Chicago, said, "We do not have the purchasing power or negotiating leverage that many large companies have," adding, "It's small businesses like ours that are really feeling the pressure from the tariffs." She said she paid $74,000 in tariffs when importing products from Italy this fall, about double the usual amount. To keep the company afloat, Andre raised product prices by at least 10% and did not propose wage increases to about 35 employees this year.
According to an analysis by the Federal Reserve Bank of Atlanta, about 86% of U.S. corporations that import goods via ocean shipping, the most common means of international trade, are small businesses with fewer than 50 employees. That means most of the damage from tariffs is concentrated on small businesses. Unlike large companies with diverse supply chains, they rely on a single supplier and a single country, so when tariffs surge, the damage is inevitably greater.
The Federal Reserve Bank of Atlanta analyzed that "smaller importers have relatively limited ability to withstand higher trade expenses or switch suppliers, and as a result, they may experience debt defaults or bankruptcy."
The Federal Reserve (Fed) has also recognized the difficulties facing small businesses. After cutting the benchmark interest rate on the 17th, Federal Reserve Chair Jerome Powell said, "Companies that sit between exporters and consumers are being hit hardest by tariffs," adding, "When they buy something to sell at retail or use in production, they are likely bearing most of the expense and have not yet been able to fully pass it on to consumers."
The NYT noted that most of the economic data released so far still do not reflect the damage tariffs have caused to small businesses. That is because many of the tariffs that heavily affect small businesses only took full effect after August. Andrew Chamberlain, chief economist at Gusto, said, "When the fiscal year ends and small businesses scrutinize their sales and labor costs more closely, they are likely to feel greater pressure."
In a survey conducted by Gusto, which provides payroll management services and more to small businesses, of 1,140 client corporations in August–September, 50% of responding companies said they were harmed by tariffs this year, and 56% expected the damage to continue next year. The Organization for Economic Cooperation and Development (OECD) has also said that President Trump's tariffs are putting pressure on consumers and the labor market.