How New Tariffs Will Impact Small Businesses

Last Updated February 18, 2025

As the Trump administration implements new and increased tariffs on imported goods, small businesses across the country are facing a wave of uncertainty. Tariffs have long been a tool used in trade policies to protect domestic industries, generate revenue, and create leverage in trade discussions. However, with the recent escalation in tariffs, small businesses—particularly those that rely on imported materials and goods—are beginning to feel the pressure. The additional costs created by these tariffs can trickle down to affect everything from product pricing and supply chain stability to overall profitability.

Understanding Tariffs

Tariffs are taxes imposed by a government on imported goods and services. The company doing the importing is responsible for payment, though the additional cost is often passed on to the consumer.

While their primary purpose is to make imported products more expensive, tariffs are levied for a variety of strategic reasons, including:

• To generate revenue
• To encourage the purchase of American-made goods and services
• To create leverage in trade negotiations
• To protect domestic industries from being undercut by cheaper foreign production

While tariffs can boost domestic manufacturing, they can also disrupt supply chains and raise costs for businesses that rely on imported goods.

An Overview of Trump’s New Tariff Policies

While tariffs are not new to the United States’ trade policies, President Trump’s administration has enacted aggressive changes to tariff legislations that will affect small businesses nationwide. At the time of writing, below is a brief overview of the tariff changes:

• Steel and Aluminum: On March 12th, an increase will take effect that raises the tariff on aluminum from 10% to 25%. Additionally, a new 25% tariff will be levied on steel imports.
• Canada and Mexico: At the beginning of February, Trump signed executive orders that would impose 25% tariffs on most imports from Canada and Mexico. After the threat of retaliatory tariffs by both countries and promises to increase border security, the upcoming tariff policies were put on hold for 30 days (though the steel and aluminum tariffs are still in effect on imports from Canada and Mexico).

• China: Trump imposed a 10% tariff on all imports from China, and China almost immediately retaliated with tariffs of 10-15% on various US imports.
• Reciprocal Tariffs: On February 13th, Trump signed a memo that kicked off the development of a plan to instate reciprocal tariffs. These tariffs would effectively match the tariffs levied against US imports by other countries.
• De Minimis Rule: In January, Trump cut the de minimis exemption for China, which previously allowed Chinese imports of $800 or less to bypass typical customs procedures and duties. International corporations like Temu and Shein previously benefitted from the de minimis exemption as it allowed US consumers to cheaply purchase products directly from China. In the time since this exemption was cut in January, the Trump administration has had to put a pause on enforcing it as it has proved to create a larger logistical challenge than was originally anticipated.

How Do Tariffs Impact Small Businesses

Increased Costs for Imported Goods

Tariffs are taxes imposed by governments on imported goods, increasing their cost for domestic buyers. When a tariff is applied, the business that is importing the product must pay the additional fee, making foreign goods more expensive compared to their domestically produced alternatives. If a small business relies on imported raw materials or goods to operate, tariffs can create added expenses, potentially requiring these businesses to re-evaluate their pricing strategies and operations.

Increased Prices for Customers

Because tariffs increase the cost of imported raw materials and goods, small businesses that are impacted by these tariffs will often raise their prices, passing the cost increase on to the consumer. While passing the cost of the tariff on can help protect a small business’s profit margins, doing so could impact their customers’ buying behaviors. If their customers deem the price too high, small businesses could lose buyers.

Supply Chain Disruptions

Tariffs can create supply chain issues, including delays in receiving imported goods, shifts in operations, and changes in buying behaviors. With the introduction of a new tariff, importers have to go through additional customs procedures, including paperwork and inspections, which can slow down the movement of goods. Additionally, as small businesses re-evaluate their operations, there could be a push towards domestic sourcing, which could result in shortages and new logistical challenges.

Reduced Competitive Edge

Small businesses that rely on imports may struggle to absorb the new tariff costs, which could force them to raise their prices. Larger corporations tend to have a greater ability to absorb these costs due to scale and negotiation power, enabling them to keep prices lower than many small businesses. With higher prices, small businesses may lose a competitive edge over their larger competitors.

Types of Businesses Impacted by the New Tariff Policies

New and increased tariffs can affect a wide range of businesses, but certain industries are more likely to be hit harder than others. Small businesses that rely on global supply chains often bear the brunt, as increased costs can lead to higher prices for consumers or reduced profit margins. Understanding if your business is amongst the most vulnerable can help you better prepare for the financial and operational challenges that come with changing trade policies.

• Manufacturing: The manufacturing industry is expected to experience the widest variety of effects due to tariffs, both positive and negative. Negative effects from tariffs include increased costs for imported raw materials, disruptions in the supply chain as sourcing shifts, and reduced international demand for US manufactured goods. Potential positive effects include reduced dumping (in which international competitors reduce prices, forcing US manufacturers out of business) and increased demand for US-made products and materials.
• Agriculture: Farmers could be negatively impacted by retaliatory tariffs placed on the US. Crops like soybeans and corn are at risk of experiencing a decrease in international demand, if retaliatory tariffs raise the cost for other countries to import them. Additionally, farmers are at risk of increased expenditures for key resources, as explained by American Farm Bureau President Zippy Duvall, saying, “Over 80% of the United States’ supply of a key fertilizer ingredient — potash — comes from Canada. Tariffs that increase fertilizer prices threaten to deliver another blow to the finances of farm families already grappling with inflation and high supply costs.”
• Automotive: The 25% tariff on steel and aluminum imports will impact businesses throughout the automotive industry. Manufacturers will be directly impacted by the increased cost of raw materials, but there is likely to be a trickle down effect that could raise the cost of cars and reduce overall demand.
• Construction: Builders and contractors who use steel and aluminum for everything from structural supports to building materials (such as siding or framing) will face higher costs. Additionally, the construction industry heavily relies on Canadian softwood, so the potential 25% tariff to Canadian imports could drive up costs. This increase in expense could lead to more expensive construction projects and delays in construction timelines.
• Energy: China’s retaliatory tariffs in response to the United States’ 10% tariff included tariffs on imported coal, crude oil, and liquified natural gas from the US. With the increased cost of these materials, particularly coal, demand for US imports are likely to decrease, negatively impacting businesses that rely on energy exports.
• Retailers: US retailers that bring in products from China, such as consumer electronics or clothing, will face higher costs due to the 10% tariff on Chinese imports. And if the 25% tariff on Canadian and Mexican goods is instated after the 30 day wait period, even more imported items would be subject to higher costs.
• Tech and Electronics: Many electronic products (smartphones, computers, etc.) are manufactured in China, and with the new 10% tariff, the cost of these items could increase, affecting retailers’ prices and potentially reducing demand.

Long-Term Considerations for Small Businesses

As new tariff policies continue to be implemented, small businesses should consider how they manage these extra costs in the long-run. Some initial questions that small businesses impacted by these tariffs should ask, include:

• Can I absorb the costs of the new tariffs or do I need to raise my prices?
• How will price changes impact my customers’ purchasing decisions?
• Are there ways to improve efficiency or cut costs elsewhere to offset the impact of these tariffs on my small business?
• Can I find domestic or alternative international suppliers to reduce tariff costs?
• Will switching suppliers affect product quality, reliability, or lead times?
• Can I renegotiate my contracts with suppliers for better pricing?
• Should I explore alternative financing options to manage cash flow disruptions?

In Conclusion

While the overall impacts of Trump’s tariff policies remain to be seen, small businesses should evaluate their business strategies as the changes roll in. While tariffs are meant to support the domestic market, Bankrate’s Senior Economic Analyst Mark Hamrick shared, “It has been estimated that if the tariffs remained in place as threatened, it could cost somewhere between $800 to $1,000 per person a year.” Keeping a close eye on new tariff policies will help you stay informed and prepared for any impacts your business may experience.

Tariffs FAQs

Who pays for the tariffs on imported goods?

The cost of tariffs on imported goods is paid by the importer, which could be a business or a retailer that brings the goods into the country. However, the final cost of the tariff often gets passed along to consumers in the form of higher prices for those imported goods. So, while the importer directly pays the tariff, consumers may end up covering the cost. Additionally, imports of $800 or less bypass tariffs all together through the de minimis exemption (though this exemption no longer applies to imports from China).

What is the difference between a tariff and a duty?

“Tariffs” and “duties” are often used interchangeably, but they are slightly different. Both refer to taxes imposed on goods as they cross international borders, but a duty is more general than a tariff. Duties are indirect taxes that can be applied to both imports and exports (though most commonly on imports), and they are typically levied to bring in government revenue. Tariffs are direct taxes on imported goods and are often applied at different rates for different exporting countries. Tariffs are more commonly used to influence trade policy and drive domestic production.

What is a reciprocal tariff?

A reciprocal tariff refers to a tariff that is imposed at the same rate as the existing tariff against that country. For example, if Country A levies a 10% tariff against Country B, then Country B may instate a reciprocal tariff of 10% on Country A. The general goal of reciprocal tariffs is to create trade balance, leveling the same restrictions against both countries; however, this is not always the end result. While reciprocal tariffs can create trade negotiation power, it can also disrupt the supply chain and drive up prices.

What is Section 232?

Section 232 is a part of the Trade Expansion Act of 1962 that gives the President authority to levy tariffs via executive orders, bypassing Congress. These tariffs can only be imposed if an investigation by the Department of Commerce finds that an existing import threatens national security. Recently, President Trump used his authority under Section 232 to increase the tariff on aluminum to 25% and re-instate a true tariff on steel of 25%. This executive order was based on a previous investigation into steel and aluminum imports in 2018.

Angela Petulla

Angela is the Director of Online Marketing at altLINE where she manages content production, marketing and sales operations, and digital PR. Angela joined altLINE in 2022 after several years of working in digital marketing across various industries including financial services and B2B. Angela loves creating content that helps readers better understand their financing options and helps them make informed decisions about factoring. Her work has been featured in publications like Search Engine Journal and Moz.