What small businesses need to know about tariffs

From driving up costs to halting hiring, recent changes to tariff policies have left many local entrepreneurs struggling to control their overhead and plan for the future. A recent report from the Joint Economic Committee found that employment at small businesses with fewer than 10 employees declined by 3%—or 366,400 jobs lost—in recent months due in part to tariffs. 

To help you better understand tariffs and how they can impact your business, we’ve put together a short Q&A.

What is a tariff?

A tariff is a tax imposed by a country's government on finished goods and raw materials imported from another country. This tax is legally paid by the domestic business that imports the respective goods or materials through its country's customs authority. But it’s important to know that the economic burden of tariffs is often shared by or passed on to the domestic consumer, rather than being entirely absorbed by the business that does the importing. 

Why do we have tariffs? 

Tariffs are used to raise government revenue and as a tool for foreign trade negotiations. Some also view tariffs as a way to incentivize consumers and businesses to rely on domestic producers and manufacturers by making imported goods more expensive than domestic goods. 

Why are tariffs higher now? 

The current administration has largely justified the sweeping use of tariffs to close the U.S. trade deficit, which is when a country's imports exceed its exports. The administration is also hoping to increase domestic manufacturing. Additionally, the administration is using tariffs as a political negotiating tool in an attempt to gain leverage over countries like Canada, Mexico and China as it tries to secure new trade agreements with those countries.  

What are the potential impacts on your small business? 

Tariffs are having an immediate impact on small businesses. As many entrepreneurs rely on imports, small businesses are bearing some of the brunt of the increased cost. While larger businesses are more likely to have the flexibility to adjust where they source materials or absorb greater overhead costs, allowing them to keep prices lower and undercut their smaller competition, local entrepreneurs do not have this same flexibility. Even before tariffs were implemented, many small business owners were already working on tight margins. They cannot afford to take on new costs without increasing their prices. Some businesses are also reducing hours, laying off staff or even shutting down.

What can I do? 

While increased tariffs continue to impact the small business community, owners can push back against these policies by sharing their stories and engaging with lawmakers. By telling us how your business has been impacted by recent policy changes or taking our quarterly Voice of Main Street Survey, you can help bring awareness to the real-world impact of federal policies. Additionally, by getting involved with small business advocacy groups and taking part in advocacy fly-ins or supporting a sign-on letter, you can influence policies that work for you.

How can I stay informed? 

The administration's tariff policies are ongoing and subject to change due to the evolving nature of trade negotiations with dozens of countries. Notably, the three-month pause on new reciprocal tariff rates for nearly 100 countries announced on April 2 is scheduled to be lifted on July 9. Once this pause is lifted, U.S. businesses will be subject to these new tariff rates. To stay informed on the status of implemented and threatened U.S. tariffs, please refer to this tariff tracker.