How Tariffs Affect Small Businesses and Tips on How to Navigate Them

Today’s ongoing tariff wars aren't just a problem for big corporations. Increases in tariffs affect small businesses, impacting their supply chains, pricing structures, cash flow, and projected profitability.

To understand how tariffs will affect small businesses, Forbes spoke to Carolyn Rodz, co-founder and CEO of Hello Alice, an online platform that helps businesses launch and grow; Ben Johnston, COO of Kapitus, a small business lender; and Colin King, co-founder of Circle City Capital Group and USA Brands LLC, which owns and manages American-manufactured apparel companies.

How Will Tariffs Impact Small Businesses?

Ben Johnston: Tariffs on the import of foreign goods, including from China, Mexico, and Canada, could over time make manufacturing in the U.S. more economical than importing goods from abroad. But in the short- to medium-term, these tariffs are likely to drive inflation higher and cause significant disruption to the global supply chain, threatening many U.S. jobs at manufacturers, wholesalers, and retailers.

Higher tariffs will certainly cause prices to rise for U.S. consumers. This will also spur inflation and lower overall consumption, slowing the economy.

What Can Small Businesses Do to Survive Fluctuating Tariffs?

Carolyn Rodz: Small businesses need to be creative about how they respond to tariffs. Looking for alternative suppliers, both domestically and internationally, can offer improved pricing once tariffs are factored in. 

Businesses must determine how much of the added cost they can absorb versus how much they need to pass along to consumers. Raising prices strategically — by bundling products, adding value through services, or repositioning premium offerings — can help maintain customer loyalty. Additionally, negotiating better terms with suppliers or securing more favorable financing arrangements can provide some breathing room.

The long-term potential of reshoring manufacturing is promising, but small businesses need immediate relief like temporary tax breaks, incentives for domestic production, and financial assistance.

Johnston: Significant tariffs on large U.S. trading partners are forcing wholesalers, retailers, manufacturers, and other business owners to reexamine their supply chains and develop sourcing strategies that reduce the cost of tariffs while still ensuring the timely delivery of goods.

Small businesses have learned the benefits of shorter supply chains and greater onshore production. Today, with the added threat of large tariffs, these benefits are amplified. As a result, we expect to see continued growth in domestic manufacturing and the integration of new technologies that promote automated production. While we expect the growth in U.S. manufacturing and automation to be net positives for the U.S. economy, we are very worried that the pace of this change will be highly disruptive to the global supply chain.

How Can Small Business Owners Quickly Diversify Their Supply Chains?

Rodz: Explore alternative suppliers in countries not affected by tariffs. Trade associations, chambers of commerce, and online marketplaces like Alibaba or ThomasNet can help identify options.

While they may have higher costs, some U.S. manufacturers offer shorter lead times and more predictable pricing. Forming cooperative buying groups with other small businesses can help with negotiating better bulk pricing, or contact small businesses who want to partner with companies in your region and are willing to negotiate pricing.

Third-party logistics and sourcing specialists can also help identify new suppliers and streamline the transition to alternative supply chains, though there’s typically a cost associated with utilizing their services.

Finally, and perhaps most accessible, is tapping into peer groups or local networks, trade shows, and industry forums, all of which can offer valuable insights into sourcing alternatives.

Johnston: U.S. businesses that import critical goods from abroad should determine if it is possible to source these goods domestically or vertically integrate their supply chains to produce them domestically.

If domestic production proves uneconomic, business owners will need to pay close attention to the tariffs being imposed and the countries they are most affecting. Acting swiftly to relocate production from one country to another could be beneficial. 

Colin King: Many small businesses are slow to make changes. Why? Fear of disruption. Now is the time to explore new suppliers, request quotes, and consider alternatives to strengthen supply chain flexibility. Plus, you don’t need a formal RFP process to ask for quotes and samples from new suppliers, domestic or international.

How Much Can Small Businesses Realistically Raise Their Prices?

Rodz: Price increases are inevitable, but what matters even more is how they are implemented. Gradual, transparent adjustments tied to added value, like improved customer service or loyalty perks, can soften the impact. As with any business decision, consider what your competitors are doing and how much your customer base can realistically bear.

Ultimately, communication is key. If price hikes are tariff-related, a clear message about why prices are going up can help maintain trust.

Johnston: Many business owners face the dilemma of whether to raise prices to maintain margins. It is important to know where the competition is priced, what they offer, and how busy they are. One way to maximize pricing efficiency is to raise standard prices but keep special offerings priced low, offering something of value to the bargain hunters in the customer base.

Another way to implement price increases is to introduce new offerings. New and exciting offerings make it harder to discern specific price increases. Or consider resizing. There may be an opportunity to simultaneously cut the size of the product/package and the price while increasing margin. If some customers miss the larger size, provide an upsized option for a premium. Some businesses have also driven profitability by offering lower-cost but higher-margin items.

King: At our company, we’re taking a multi-step approach beyond “just raise prices.” First, we’re closely monitoring our competition to see how they adjust prices or marketing strategies. Next, we’re looking at our suppliers and constantly searching for new sources. Now is a critical time to reduce supplier concentration and explore new sourcing options, domestically and internationally.

Last, we’ll experiment with pricing. Passing 100% of cost increases on to customers could kill demand, so we’ll play with pricing to minimize the risk of losing too much volume

How Long Do You Think These Tariff Wars Will Last?

Rodz: Tariff policies are highly dependent on the political climate and international trade negotiations. Right now, we’re seeing adjustments to policy change with little notice. Some tariffs may just be temporary bargaining tools, while others could persist. Small businesses should prepare for extended volatility by building financial resilience and supply chain flexibility into their operations.

Any other concerns you’d like to address?

Rodz: Small business owners can’t afford to be reactive. This means regularly reviewing financials to identify cost-cutting and efficiency improvements, keeping a close eye on policy changes and understanding how they impact operations, and building an emergency fund — whether through diversified income streams, securing financing in advance, or optimizing cash flow — to weather uncertainty.

Tariffs certainly pose some immediate challenges, but they also present an opportunity for small businesses to build more resilient and adaptable operations.

 

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