In response to higher tariffs, small businesses can source domestic products, pass along the tariffs by raising prices or do nothing and take the financial hit.
The tariffs imposed by President Trump have introduced significant challenges for U.S. importers, necessitating strategic adjustments to mitigate financial impacts and maintain operational stability.
Trump’s Liberation Day announcement on April 3 included 10% tariffs on all imports into the U.S. The tariffs were then delayed for 90 days as the president negotiates with other countries. Meanwhile, he continues to engage in a tit-for-tat with China and imposed 145% tariffs on Chinese-made goods, which now exclude smart phones and electronics. With global supply chains already under strain from geopolitical tensions and logistical bottlenecks, the ever-changing tariff policies have increased uncertainty and operational costs for businesses across industries.
Related: Liberation Day: What Trump’s Tariffs Will Mean For Small Businesses
According to FedEx’s 2024 Small Business Trade Index, over two-thirds of small- and medium-sized businesses in the U.S. rely on imports to use for production or as merchandise for domestic distribution. Also, roughly 9 in 10 of these companies identify the UK, Japan, and China as countries that are important to maintain trade relations with.
Tariffs can have severe impacts on many of the nation’s small businesses who may not have the capital or financial flexibility of larger firms. Small business owners have two choices; they can either pass the cost of the tariffs to their customers or they can eat the costs, which would cut into their margins. Neither option is attractive.
Raising prices can be a psychological hit, as well as a financial hit, for consumers who have seen some prices (eggs, gasoline, etc.) decline since Trump took office. More price hikes provide a psychological blow that shakes consumer confidence.
The risk in upping prices is related to the elasticity of business offerings. Commuters will use the same amount of gas to get to and from work each day and won’t be able to stop buying it. However, restaurants may see a reduction of how often people go out to eat. Restauranteurs will see their profits drop if people decide to bring their lunch to work in order to save money.What Importers Should Do in Response to Higher Tariffs
In response, importers should consider strategic measures they can take now to preserve margins, secure supply chains, and minimize exposure to ongoing trade turbulence.
1. Utilize Bonded Warehouses and Foreign Trade Zones (FTZs)
Storing goods in bonded warehouses or FTZs allows importers to defer duties until products are released into the U.S. market. This strategy enables companies to manage inventory and improve cash flow flexibility.
2. Explore Alternative Sourcing and Supply Chain Diversification
Relying on a single region or country for core components or finished products is now riskier than ever. Diversifying supply chains by sourcing from countries that are less impacted by Trump’s tariffs can reduce dependency on high-tariff regions. Businesses looking for alternatives to Chinese goods can look for suppliers in places like Vietnam, Latin America, or Eastern Europe. However, it’s essential to conduct thorough due diligence to ensure new suppliers can provide the volume of goods needed in a timely manner and comply with quality standards and ethical sourcing practices.
3. Renegotiate Contracts
Assessing current supply and sales contracts is critical.
