US Small Businesses Face Dire Consequences Amid Escalating Trade War
American businesses of all sizes are bracing for the impact of President Donald Trump's tariffs, but small businesses are arguably the most vulnerable.
Small businesses, which employ half the US workforce, are grappling with rising import costs that are forcing them to hike prices, freeze expansion plans, or absorb losses to already-thin profit margins. The outcome of how these businesses handle the escalating trade war will significantly impact the wider economy.
Florida-based entrepreneur Jay Foreman, CEO of Basic Fun Inc!, has experienced the sting firsthand. His company, which imports toys from China, was spared from Trump's first-term tariffs. However, the latest 10% China levy has hit Foreman hard, wiping out nearly a third of his this year's profit margin. He is faced with the dilemma of absorbing the costs, pressuring suppliers for lower prices, accepting smaller profits, or raising toy prices during the crucial holiday season.
With more tariffs on the horizon, the floodgates are opening for many businesses. While President Trump maintains that these protectionist measures will revive American industry, analysts fear that they may instead reignite inflation and impede the strong economic growth the US has been experiencing.
Small businesses, unlike larger firms, often lack the financial cushion to absorb tariff costs. Instead, they must pass on price increases directly to customers. Field Fastener, a Rockford, Illinois-based supplier of components, is among those forced to raise prices as their Chinese and Taiwanese suppliers face higher tariffs.
Meanwhile, for manufacturers like California-based LEDtronics, passing on cost increases is not as straightforward. The company's customers, some of whom have been loyal for decades, may balk at higher prices, forcing LEDtronics to potentially lose business.
Another major concern is the impact of tariffs on business investment. Trump's trade policy aims to encourage companies to build factories in the US and create jobs. However, until businesses have a clearer understanding of the long-term implications of tariffs, they will be hesitant to make such investments.
Todd Adams of Sanitube, a family-owned manufacturer of stainless steel tubing, has put expansion plans on hold due to the uncertainty surrounding tariff-related costs. With potential tariffs on metals and Canadian goods looming, his company faces an unclear financial future.
In an effort to avoid tariffs, some businesses are exploring alternative sourcing options. Darren Klein of Poly Craft Industries is considering shifting production sources from China to other countries due to the 10% tariff hike. However, smaller businesses often lack the capital and resources to easily adjust their supply chains.
Claire Reade, a senior counsel at Arnold & Porter and former US trade representative, highlights the challenges faced by small businesses in dealing with tariffs. Unlike larger companies, they may not have the lobbying power or financial flexibility to navigate the bureaucratic hurdles.
Despite the challenges posed by tariffs, some small businesses have taken proactive measures to mitigate their impact. Margo Clayson of The Mighty Microgreen stockpiled materials from China in anticipation of trade war escalation, saving her company a significant amount of money.
While President Trump's agenda includes policies that appeal to small businesses, such as lower taxes and reduced regulations, the impact of tariffs remains a major concern. As the trade war continues to escalate, American small businesses are forced to navigate a complex and uncertain landscape.