Many U.S. small businesses could face a financial crunch as President Trump’s reciprocal tariffs take effect on Wednesday, slapping new import duties on products from almost every nation across the globe.
Some small businesses told CBS News they’re worried about the impact from the sharp increase in tariffs that they’ll soon be required to pay to the federal government. After paying the levies, they said they’ll be left with two choices: raise the prices they charge customers or swallow the costs and take a financial hit.
Small businesses, generally defined as enterprises with fewer than 500 employees and revenue of less than $7.5 million, account for almost half of all private-sector employment in the U.S. But they’re also more vulnerable to tariff costs because they don’t have the deep pockets or financial flexibility of large businesses, noted Aaron Terrazas, an economist at Gusto, which provides payroll and HR services to small and midsize businesses.
“For many small businesses, this is a one-two punch,” Terrazas said. “They are getting higher prices from suppliers, and their customers are more skittish” just as they’re grappling with heavier tariffs.
Among those businesses reckoning with the added costs is Simplified, an online stationery business that has manufactured its colorful planners in China since 2013. Its owner, Emily Ley, told CBS News that the new reciprocal tariffs “will have a devastating impact” on her business, costing her an additional $630,000 in fees over the next year.
On April 3, Ley filed a lawsuit alleging Mr. Trump has exceeded his authority in dictating the import duties. Under the Constitution, Congress has the power to impose tariffs and regulate foreign commerce.
Courtesy of Emily Ley
“This additional tax burden is catastrophic to our business,” Ley added. “We’ve already raised our prices as much as possible to absorb previous tariff increases. There’s a limit to how much we can increase prices before we price ourselves out of the market.”
To cope with the costs, she said the company is reducing salaries and scaling back expansion plans.
Recipe for a revival?
Mr. Trump has said tariffs will revive American manufacturing by incentivizing both domestic and foreign companies to build factories in the U.S. But small businesses, which typically operate on thin margins, generally don’t have the capacity to quickly shift their supply chains or build local production facilities given the higher cost of labor in the U.S.
Even large businesses that have the financial heft to move its plants back to the U.S., such as Apple, would require years to build a factory in the U.S., noted Wedbush analyst Dan Ives in an April 8 research note.
“Maybe over time, we will build a supplier base, but that takes time,” Terrazas said. “But in the interim there is this transition period that is very perilous for small businesses.”
Not all small businesses can wait that long. Alyssa Chambers, the founder of NOVA Essence Inside Out, which makes candles and other wellness products, said she plans to absorb the cost of tariffs applied to the Chinese-made candle jars and waxes she relies on — for now.
Chambers said she would reassess her business’ pricing toward the end of summer and depending on the state of the economy.
For small businesses, buying from American manufacturers isn’t really an option, Chambers added, noting that a U.S.-made candle jar costs about $12 each. By contrast, she can buy a 15-pack of jars made in China for about $20. Although she expects that price to rise to about $40 after the tariffs hit home, it’s still cheaper than buying domestically.
Other small businesses simply don’t have the option of buying from domestic manufacturers, said Matt Weyandt, co-founder of chocolate maker Xocolatl. Because cocoa is grown near the equator, very little of it can be grown in the U.S., he noted.
“Despite that, we’ll now be paying an additional 10% or more for all of our cocoa beans on top of their already elevated prices,” Weyandt said. “This is not going to bring cocoa farming jobs to the U.S. or increase American manufacturing — it’s just going to hurt American chocolate manufacturers.”
To be sure, there are some small businesses that could continue to thrive even with higher tariffs Terrazas said. That includes domestic food manufacturers or health care businesses that don’t rely on imports, such as elder or child care companies.
Skittish consumers
Small businesses are coping with the tariffs just as Americans are growing more pessimistic about the economy, with consumer confidence slumping to a 12-year low last month.
“In the long term, American consumers are really remarkable. But in the short term, it’s hard,” said Kevin Klowden, an economist with the Milken Institute, a think tank. “It is definitely different because this is an intent to force a structural shift.”
But, Klowden added, Mr. Trump is doing so “by significantly putting pressure on the cost structure of the entire system.”
Whether inflation-weary consumers will accept price hikes from businesses remains to be seen. If the tariffs aren’t reduced, inflation could pick up this year, reaching as high as 4% by year end, up from about 2.8% currently, according to Wall Street economists.
“This is a moment of elevated risk for the economy,” Terrazas said.
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contributed to this report.
