President Trump believes use of tariffs will help spur American manufacturing and create jobs. President Trump made tariffs on foreign countries a cornerstone of his “America First” campaign theme throughout the 2024 Election season. This week, he has announced 25% tariffs on Mexico and Canada with 25% tariffs, and China was hit with a 10% levy. Almost as quickly as tariffs on Mexico were announced, he struck a deal with Mexican President Claudia Sheinbaum in which she agreed to send troops to the U.S.-Mexican border to deter additional illegal immigration.
Canada is implementing our $1.3 billion border plan — reinforcing the border with new choppers, technology and personnel, enhanced coordination with our American partners, and increased resources to stop the flow of fentanyl… In addition, Canada is making new commitments to appoint a Fentanyl Czar, we will list cartels as terrorists, ensure 24/7 eyes on the border, launch a Canada-U.S. Joint Strike Force to combat organized crime, fentanyl and money laundering . China, however, is less likely to back down so easily. Firing their own shot in the trade war, the Chinese they have levied tariffs of their own on American goods. President Trump announced 10% tariffs on Chinese imports. China responded with levies on
... [+] American-made goods. Economists warn that tariffs could lead to higher prices for Americans at a time when consumers are already complaining about inflation. Companies that import goods from other countries are likely to pass the increased costs onto consumers. Thus, Americans would ultimately be paying the tax on imported goods and parts. Products that are likely to be impacted most by Trump’s tariffs include imported cars and auto parts that are used in U.S. car production, as well as oil and gas, agricultural products, and electronics, just to name a few.
Impact of tariffs on American small businesses
Tariffs are a tax on imports. The argument in favor of putting tariffs on foreign-made goods is two-fold. Tariffs help spur U.S. manufacturing by discouraging U.S. companies from importing goods made in countries like China that have low production costs by making the imports more expensive. Trump wants to put incentives in place for companies to buy American-made goods, which are made with higher production (labor costs). A case in point here is Eder Manufacturing Co., a Milwaukee-based company that was able to compete more effectively against Chinese-made products and is now the nation’s largest manufacturer of both flags and flagpoles. Second, Trump believe high tariffs on foreign-made goods will lead foreign companies to bring more of their manufacturing into the U.S., such as BMW, Mercedes, Volvo and Honda in South Carolina. Likewise, Steve Madden shoe company recently elected to move some of its production facilities to the U.S. in anticipation of Trump tariffs on Chinese-made goods.
Related: Will Donald Trump’s Proposed Tariffs Help Or Hurt Small Businesses? If either of these holds true, tariffs would be a big win for U.S. manufacturers, consumers and the economy as a whole. While Trump is selling the plan as a tax that will be paid for by foreign countries, American importers will pay tariffs, and price will be passed along to retailers and, ultimately, by U.S. consumers. The money collected via the tariffs goes into the coffers of the U.S. Treasury. Additionally, if other countries retaliate by imposing their own tariffs on U.S.-made goods, as China just did, the price of U.S.-made goods will go up in foreign markets, and consumers in those countries might not be willing to pay the higher price. Thus, the retaliatory tariffs could hurt U.S. companies that export overseas. “Whether price levels go up or not will depend on what corporations are going to be more willing to accept more of the burden of those tariffs on themselves in the form of potentially lower profits,” said Aaron Cirksena, founder & CEO of MDRN Capital, and a member of
Forbes Finance Council . Other companies, Cirksena says, will pass more of those costs along to the consumers and basically put more of the burden on them. “If companies are not willing to alter their profit margins, the consumer is going to have to eat the cost, basically.” Sometimes Trump threatens tariffs to compel non-economic behavior or to start a conversation, not as the final policy destination. Any business that sells foreign-made goods (wine and cheese importers, for example) or uses foreign-made parts in their manufacturing process should expect to see their cost structures rise. They, like big corporations such as car manufacturers, will have to determine whether they can take a hit in the form of reduced profit margins or opt to pass along the increase cost. If a business owner is not confident that customers will be willing to pay more for their products, then he or she may not look to pass along the cost. This will be a hard decision for companies that are already feeling a cost crunch. Insurance costs are skyrocketing, rents continue to climb, and many states have increased the minimum wage. For businesses such as restaurants that are labor intensive, the increased costs would cut substantially into earnings. Companies that took out variable rate
small business loans have been anticipating that interest rates would come down this year, based on Federal Reserve signals at the end of last year. However, Fed Chair Jerome Powell announced just last week that the Fed’s Federal Open Markets Committee (FOMC), which sets the benchmark federal funds rate, opted to keep rates steady. Last month, the
Biz2Credit Small Business Earnings Report revealed that many small businesses took a substantial earnings hit in the fourth quarter of 2024. It found that average small business monthly earnings was $83,083 in 2024, a year that saw a long, steady increase in monthly expenses. Meanwhile, revenues fluctuated – rising steadily in the first half of the year and declining from August through December. Companies that are involved in importing or that use foreign-made parts in their production process are concerned that their costs could go higher. Despite these downsides, there are some businesses that will benefit from tariffs. Domestic manufacturers, including apparel companies, should do better. Given Trump’s America First stance, consumers may be willing to pay a little bit more for U.S.-made items rather than cheaper articles of clothing made in China, Mexico, Vietnam, or other countries. Wineries in California, New York, and other states could find new buyers if the prices of wines from France, Italy, Spain, and New Zealand go too high because of tariffs. Trump has also promised to help U.S. oil producers boost their production and competitiveness, which could lower shipping costs. This, too, would benefit those small businesses.
How Small Businesses Can Prepare for Trump’s Tariffs
1.
Review Supplier Contracts : When the tariffs hit, examine current contracts with suppliers to see if they are still good deals. If the agreement isn’t suitable, they should consider looking for new suppliers or local producers who could offer lower prices or more flexible arrangements. 2.
Make Contingency Plans : Business supply chains could be rattled if tariff wars linger, which could potentially disrupt your organization. Begin creating contingency plans just in case economic shocks happen. 3.
Invest in New Technology : Automation, data analytics, and cloud platforms have the ability to create smoother operations, manage inventory better, and improve communication with suppliers and customers. 4.
Manage Your Cash Flow and Have Capital Ready : Even if your business is thriving, tariffs could mean paying more for the goods you need. If possible, have additional capital resources to pay for levied tariffs and other related costs. Trump’s tariff policies could inflict some pain in the short-term, but in the long-term, they will be a net plus for the economy if more of the goods we buy are produced domestically. Likewise, if there's an increase in company profits and in wages because more jobs are brought back home, tariffs will be a benefit to American small businesses. However, revenues from sales in foreign markets could be hurt if other countries retaliate with counter-tariffs, especially if inflation ticks up again in the U.S. and further impacts the supply chain. If this happens, the anticipated – and hoped for – lowering of interest rates might be further delayed, which could postpone investment in small businesses.
