Tariffs, Uncertainty, and Small Businesses
When a reporter recently asked President Trump if he had a message for small business owners concerned about higher tariffs, he responded, “They’re going to be so much richer than they are right now.”
Small business owners don’t appear to share Trump’s confidence.
The administration’s basket case approach to tariffs and global trade is fueling economic uncertainty. According to the February survey from the National Federation of Independent Business (NFIB), its uncertainty index rose to its second-highest recorded reading:
A chart from the FedEx Small Business Trade Index shows that American small businesses are highly dependent on imports:
(h/t Erica York)
Small businesses use imported goods to produce domestic goods. Tariffs increase the cost of foreign inputs and domestic substitutes. The NFIB report finds that small businesses remain concerned about inflation. Whether tariffs are technically inflationary or not, business owners will perceive them that way.
Small businesses generally lack pricing power compared to larger firms. Larger companies are better able to absorb cost increases, while smaller firms have more difficulty passing costs onto customers and can lose sales as a result.
The uncertainty alone is crippling, as this example from a Bloomberg article demonstrates:
The family-owned, Florida-based firm makes stainless steel tubing, valves and fittings for food manufacturers. It sources materials from a range of countries, and employs some 20 people. Sanitube has put expansion plans on hold, Adams says, because there’s no telling how much his bills will increase as a result of tariffs — and he needs to conserve cash just in case.
He’s already on the hook for the 10% China duty, and may well be exposed to two separate tariffs due to take effect early March, on metals and Canadian goods. “We are paralyzed as a company,” he says. “Until we have an idea of what tomorrow, next month or this year holds, we’re just sort of in a holding pattern.”
After Trump was elected in November, small business optimism increased as owners welcomed the end of the Biden administration’s inflationary and pro-regulatory policies. However, the FedEx survey found that 88 percent of small business owners “say that trade is key to growing and expanding the U.S. economy,” and “three-quarters say trade directly helps their business.”
The bloom may be off the rose with the small business community, and Trump only has himself (and the people he unfortunately listens to) to blame.