Four Things Small Businesses Can Do Now to Survive Tariffs

The new federal administration recently announced 25% tariffs on Mexico and Canada, while China was hit with a 10% levy. Almost as quickly as tariffs on Mexico were announced, the White House 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 also cut a deal, with Prime Minister Justin Trudeau announcing on social media that Canada would strengthen its border and, together with the U.S., commit to fighting money laundering, organized crime and the fentanyl epidemic.

China, however, is less likely to back down so easily. Firing their own shot in the trade war, the Chinese have levied tariffs of their own on American 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 most likely to be impacted by the tariffs include imported cars and auto parts used in U.S. car production, as well as oil and gas, agricultural products, and electronics, among others.

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. They can help spur U.S. manufacturing by discouraging U.S. companies from importing goods from countries with low production costs by making the imports more expensive.

The goal is for companies to buy American-made goods, which have higher production (labor) costs. In addition, the current administration believes that tariffs on foreign-made goods will lead foreign companies to bring more of their manufacturing into the U.S. 

If those are the results, then tariffs would be a big win for U.S. manufacturers, consumers and the economy.

But if other countries retaliate by imposing their own tariffs on U.S.-made goods, as China has done, 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, 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 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. “If companies are not willing to alter their profit margins, the consumer is going to have to eat the cost, basically.”

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 will accept reduced profit margins or pass along the increased cost to the consumer.

If a business owner is not confident that customers will be willing to pay more for their products, then 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 and rents continue to climb. 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 recently announced  that the Fed’s Federal Open Markets Committee (FOMC), which sets the benchmark federal funds rate, opted to keep rates steady.

In January, 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 worry that their costs could go higher.

How Small Businesses Can Prepare for Tariffs

Now small business owners must plan how to respond to these new realities and the economic uncertainty ahead. With tariffs, including retaliatory measures planned by China, small business owners should focus on ways to mitigate the economic burden:

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.

The new tariff policies could inflict some pain in the short-term, but in the long-term, they might prove a net plus for the economy if domestic production increases. Likewise, if there's company profits and wages rise because more jobs are brought back home, the tariffs could 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 that happens, the anticipated – and hoped for – lowering of interest rates might be further delayed, which could postpone investment in small businesses.

 

This article was written by Rohit Arora from Forbes and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.