Small businesses—those with fewer than 500 employees—account for 99.9 percent of all United States firms. Today they are reeling under huge burdens created by the new tariffs implemented by the Trump administration. These tariffs, most glaringly the mind-blowing 145% on imports from China, can add dramatically to costs. Consequently, small businesses suffer and experience product scarcity, putting them at a disadvantage to their larger competitors.
Kathy Gray, co-owner of a small business that imports products from China, expressed her concerns about the implications of these tariffs. “This administration isn’t operating with the best intentions of small businesses and regular folks,” she stated, highlighting the struggles many small firms are facing.
The U.S. Small Business Administration (SBA) reports that small businesses contribute over two-fifths of the nation’s gross domestic product (GDP). They are often not resilient enough with their finances to absorb the shocks of rapid trade policy changes. Jane Liu, an associate professor of economics at the University of Nebraska, Omaha, notes that buffer against failure is more robust for bigger firms. That makes them better able to weather the shifts brought by today’s economic disruption.
We know this from a recent study conducted by the JPMorgan Chase Institute in 2020. It estimated that the typical small business only has enough cash reserves on hand to last just 27 days. This lack of a financial buffer leaves companies, especially smaller ones, vulnerable to sudden tonnage increases related to tariffs or other unexpected costs. Ebehi Iyoha, a professor of business administration at Harvard University, remarked, “Many small businesses are quite vulnerable and exposed to changes in trade policy.”
The average effective tariff rate for U.S. importers is now 25.2%. This figure constitutes the highest inflation-adjusted level ever recorded since 1909, based on data from the Yale Budget Lab. This steep increase in average tariff rates thrusts even more burdens on the backs of small businesses already facing an uphill battle against larger firms. Small businesses struggle to effectively bargain with suppliers. As opposed to their larger competitors, they are unable to negotiate down prices and absorb tariff expenses.
The Trump administration likes to point to its record helping small businesses. Administration officials and advocates argue that these efforts have reduced inflation and resulted in strong, equitable job growth. Kelly Loeffler, Administrator of the Small Business Administration, praised these efforts in a recent statement: “President Trump has restored optimism and opportunity for our job creators with a pro-growth economic agenda that has already slashed inflation, driven job creation, and delivered record investment.”
Small business owners are still unconvinced. The family-owned LARK Toys, about an hour outside of Minneapolis, Minnesota, is one example of a small business hanging in the balance as tariffs approach. Kathy Gray’s concerns resonate with many like her, who fear that rising costs will force them to increase prices for consumers.
Now, as small businesses are forced to swim with the big fish in this new economy, they almost always come out at a competitive disadvantage. Although bigger businesses can often afford to eat rising costs or haggle with suppliers, smaller businesses often don’t have the same cushion. It’s true that large businesses have greater financial resources and negotiating power than small businesses. This inequality compounds the difficulties small businesses face in weathering the storm of today’s trade policies.
