President Donald Trump’s new tariff order came in early April, bringing numerous tariffs on some of the largest US trading partners, along with flat tariffs on auto parts, steel and aluminum, oil, other imported products and biological goods.
Trump’s tariffs could primarily affect small businesses directly involved in both imported goods and items and industries further down the supply chain.
This is what small business owners need to know.
Note: This article has been updated from previous versions
What is customs duty?
Tariffs are taxes on imported products imposed by the government. Customs duties increase the import costs of goods, and customs duties are paid by the importer.
As a result, importers will have to reduce profit margins to pay taxes or pass on increased costs to consumers.
Why is Trump imposing tariffs?
Tariffs serve many strategic purposes. As a way of negotiating with other countries, access to consumer markets (or lack thereof) can be used as an incentive for other countries to give trade or policy concessions.
Trump previously used tariffs as a method of negotiation, threatening import taxes and other sanctions when Colombian President Gustavo Petro blocked planes for deported migrants from Colombia.
Another reason for the tariff is what economists call “protective” tariffs, which are done to protect the country’s manufacturing and consumer economy. For example, countries whose economies rely on wood may place tariffs on imported materials to maintain wages and maintain a more stable economy.
However, it may take time for American production infrastructure to meet demand
“We’re looking forward to seeing the company’s efforts to create a new and exciting new economic analyst at Bankrate,” said Mark Hamrick, senior economic analyst at Bankrate. “You can’t pop up a car manufacturing facility with cheap labor in a year or two, especially if parts are sourced from many other locations.”
What kind of customs duties are imposed?
Trump has imposed a variety of tariffs across the board, including:
- Flat 10% customs duties on all imported products.
- 25% tariff on imported steel and aluminum.
- 25% tariff on imported automobile parts.
- 25% tariff on all goods from countries that import Venezuela’s oil.
- 25% tariff on goods from Canada and Mexico. Product exemptions outlined in the US-Mexico-Canada Agreement.
Additionally, Trump has levied numerous new tariff charges on the country’s trading partners, including:
- Sri Lanka: 88%
- Taiwan: 64%
- South Africa: 60%
- Vietnam: 46%
- China: 34%
- India: 26%
- Taiwan: 32%
- Japan: 24%
- European Union: 20%
The impact of tariffs on small and medium-sized businesses
Small and medium-sized businesses will feel the impact of tariffs directly and indirectly, as prices change from tariffs affect everything from imported goods to operating costs.
SMEs are particularly at a disadvantage when it comes to taking the brunt of tariffs, according to Tyler Higgins, managing director and supply chain specialist at global consulting firm Aarete.
“Large businesses have more capacity to distribute more resources and costs,” Higgins said. “Consumers have a strong ability to increase consumer costs because they don’t have Costco or Walmart alternative options instead of local furniture stores and small local grocery store chains.”
However, the lack of negotiation power that SMEs can compensate for their flexibility and their ability to quickly adapt to the changing global trade environment.
Here are the impact points small businesses should know about tariffs:
Prices will rise
Companies trading on imported products may have a higher price from their suppliers.
Additionally, as materials and supplies such as wood, steel, car parts and other imported products increase prices, companies may see the trickle-down effect of rising prices, and vehicles and construction materials may increase as prices rise.
For example, a bank rate analysis of Census Bureau data shows that over a third (35.4%) of imported vehicles and vehicle parts from Mexico are projected to increase in car prices and premiums.
Even items made in the US may not be affected by price increases as the parts and supplies needed for production may be imported and customs duties may be included.
“Sadly, many Americans fear that this tax increase is still not connected with the dots paid by a combination of business and consumers themselves,” Hamrick says.
Supply Chain Changes
As suppliers try to stay priced and competitive, it will change how they source their products and what kinds of products they source.
“I’ve seen many (suppliers) who rely heavily on China, trying to assess Cambodia and Vietnam and these other Southeast Asian countries, which probably don’t have much tariffs,” Higgins said.
Suppliers may change the products they offer depending on whether they are able to source from the country of duty. You can also rely on local supply points for certain products, such as food and fresh food, depending on local availability and demand.
Export tariffs
As other countries begin to implement mutual tariffs on goods coming from United’s Seits, companies relying on exports and their international customer base can feel a lot of pressure.
China, for example, has announced a mutual tariff of 34% on American goods. China’s biggest imports include aircraft parts, semiconductors and soy products, according to data from the US Census Bureau.
How Small Businesses Can Withstand Tariffs
It’s still in the air if the tariffs will stay here, as Trump previously cancelled them as a negotiation tactic. However, the rest of the current presidential administration has several steps that small businesses can take to manage the current tariff situation.
Diversify the supply chain
Knowing where your products are coming from and which tariffs affect them will be important in the coming months, says Higgins. Relying on only one or two suppliers puts you at risk of sudden price increases or shortfalls.
Changing the products we offer will help you increase your resilience with tariff-induced price spikes.
“If there’s a business aspect that’s not an imported product and you can diversify the costs of tariffs with a wide range of product sets, you might be able to pay a little more,” says Higgins.
Please consult with your supplier
Be transparent about what your price range is, what consumers are looking for, and how to balance the increased costs. Higgins said some suppliers negotiated a split in customs costs with manufacturers and importers rather than spending all the costs on the buyers.
Building relationships with suppliers will provide more notifications about possible price increases and give you an idea of strategies to move your supply chain forward.
“It’s not making too many rash decisions, but by making these arguments, you can start creating more options and letting you pivot as things change,” Higgins said.
See where you can reduce costs
Before changing prices, consider looking where you can cut costs for your business as they can withstand inflation. As consumers who can withstand inflation may acknowledge a sudden price rise.
“Organisations are trying to assess how they can see all aspects of their business when the cost of a product rises by 5%, 10%, or 20% or more,” Higgins said.
You can reduce costs by reducing business hours, changing the products you offer, changing locations with cheaper leases, and finding out where you can increase operational efficiency.
Networking with other businesses
Working with other small businesses will help you learn which suppliers are cheapest, establish a local supply chain, and share information about consumer sentiment and responses to price increases.
Additionally, if you use the same product or product as other small businesses, you can see if you can order items as a group and receive bulk item discounts and save money.
Be prepared to adapt
Flexibility is essential for businesses going forward, Higgins says. “It can quickly change and move, quickly diversify, quickly build alternative supply chains.”
Look for seasonal deals and local resources that are cheaper than importing items with duties. Also, don’t be afraid to share your duties burden or shop suppliers who try to find cheap products through other routes.
Rely on customer loyalty
Companies that keep prices up may be tightening their margins, but they can gain customer loyalty, says Higgins. Reducing other costs and managing your supply chain can prove to your customer base that you are thinking about your wallet. This will help you maintain your clients if you need to increase costs later.
“Every destructive event produces winners and losers,” Higgins said. “If you’re going on, and if you have the ability to be a little more flexible in your business, I think you can turn it into a positive opportunity for your business, assuming you have loyal customers.”
