Although managing a small business has always required balancing, tariffs have recently made the task even more difficult. Entrepreneurs have a lot on their plate, from labor shortages and inventory problems to the growing expenses of digital advertising. And it becomes even more difficult when tariffs are added to the equation.
Economic journals no longer feature headlines about tariffs, those policies that seemed so far away. These financial obstacles are now extremely real and disruptive for small business owners. The recently announced startling 145% tariff on Chinese electric vehicles and a 25% tariff on aluminum imports are just two examples of how these policy changes have affected many businesses.
Additionally, small business owners may find themselves rushing to change course, adapt, or just survive. In contrast, big businesses may have the means to absorb the shock or redirect their supply chains. So, business owners share their tariff challenges.
This blog explores how business owners are handling tariffs, their smart tactics, and their invaluable guidance for those companies attempting to stop the storm.
What Is Tariff?
What’s a tariff, actually? A tariff is a national government tax or duty on imported or exported goods. Tariffs can control commerce, promote regional products, and generate revenue for nations.
Who is liable for tariff payments? Taxes must be paid to the government (at the border) by the company importing the products. Therefore, if your small companies imports products into the United States, you are liable for paying duties.
There are three different types of tariffs:
- Ad valorem tariff: A percentage of the value of the products
- Specific tariff: A fixed amount per unit of the product (for example, $5 per ton of steel)
- Compound tariff: A combination of both
The Tariff Impact
Tariffs may inadvertently affect small businesses even though their purpose is to protect the domestic industry. Compared to big companies, which have varied supply chains and financial buffers, small firms sometimes rely on specific suppliers and have lower profit margins.
According to the US Chamber of Commerce, about 235,000 small businesses account for one-third of US imports. These companies are particularly prone to sudden price increases and supply chain interruptions.
Why Tariffs Are Making Headlines Everywhere?
President Trump has announced a universal baseline tax of 10% on every import into the United States.
He imposed a 125% tax on China, which was significantly higher. In response, China imposed an 84% tariff on American goods, meaning that any American-made goods exported to China would now be subject to an 84% tax.
Who Is Responsible For Paying Tariffs?
Usually, the importer bears the total cost of a tariff. This implies that you will be liable for payment if your company imports goods from China.
The final cost of the tariff frequently trickles down to consumers in the form of increased import prices.
Here’s how it works;
The Importer Pays the Tariff
Before the importer can bring the goods into the country, they must pay customs tariffs when they reach the border.
Price Increases for Consumers
Importers may increase the price of the goods to pass on the additional tariff cost to customers. Products that directly compete with domestic goods frequently exhibit this behavior.
Domestic Market Impact
If tariffs raise the cost of imported goods, the demand for domestic goods may rise, making them appealing to buyers.
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Pros and Cons of Tariff
Here are some of the pros and cons of tariffs:
Pros of Tariff
Tariffs aren’t always good or bad. They can create income and protect regional industries, but they can increase expenses and make supply chains more difficult. To help you understand how they affect your business decisions, let’s take a quick look at both the pros and cons of tariffs.
- Protects Domestic Industries
By raising the cost of imported goods, you can protect your business from tariffs against lower-priced foreign competition.
- Promotes Local Production
Tariffs can encourage growth in domestic production and sourcing by reducing dependency on imported products.
- Increases Government Revenue
The government gets revenue via tariffs, which it can then use to fund industry support or public services.
- Negotiation Leverage
Tariffs can be used in trade talks to pressure other countries to offer better terms or ethical business practices.
Cons of Tariff
- Higher Costs for Businesses
Tariffs raise the price of imported goods and resources, which can lower profit margins, especially for small businesses.
- Price Increases for Consumers
Businesses usually pass on higher expenses to customers, which causes price inflation for everyday products.
- Supply Chain Disruptions
Tariffs may force companies to abruptly change their supplier or sourcing strategies, which could affect inventories and delivery schedules.
- Trade War Risk
Retaliatory tariffs from other countries may increase pressure and make international trade even more challenging.
Strategies for Survival and Minimize the Impact
Tariffs are unavoidable! However, small business owners are handling tariffs using smart techniques. These strategies, which include cutting operating costs and reevaluating supplier networks, are helping them keep their competitive edge.
- Reevaluate Supply Chain
One way to lessen the risks associated with tariffs is to diversify your suppliers. Researching domestic or alternative foreign sources might result in more stable prices and less reliance on areas affected by tariffs.
- Financial Flexibility
Opening a business line of credit can act as a safety net during economic instability. This financial cushion allows businesses to invest in the necessary adjustments and handle cash flow disruptions.
- Operational Efficiency
Tariffs will impact your business financially, but streamlining operations to cut overhead can also minimize the impact. This may include improving inventory control, implementing new technology, or renegotiating supplier contracts.
- Transparent Communication
Building trust with customers involves informing them of hikes in prices brought on by tariffs. Even when changes are required, providing customers with clear explanations can help them stay loyal.
- Renegotiate Supplier Contracts
Talk to your suppliers about lowering their rates if it’s just not feasible to source your goods locally or from a place that isn’t impacted.
- Evaluate Inventory
Your present stocks may not sell out for months. Assess what you already have and when you will need to order additional products; make proper plans and take the time to organize your funds.
Final Thoughts!
Although they may seem like just one more obstacle in an already difficult journey, tariffs are forcing small business owners to be more innovative, flexible, and smart.
Entrepreneurs have proven that resilience is a method of doing business, not simply a trendy term, by diversifying their suppliers and streamlining internal procedures.
The takeaway? Avoid being caught off guard by the next policy change. Weathering economic shifts requires being proactive and prepared, whether your business is new or expanding.
Tariffs can shrink profits and halt growth—unless you’ve got a plan.
Visit Collett Thorpe to learn how we assist small businesses in remaining compliant and competitive despite the challenges posed by global trade.
