Tariffs and small business: Turning challenge into opportunity

A tariff is a tax levied on imported goods when they enter the country. When the United States government imposes tariffs, they are paid for by the domestic companies that import the goods or materials. President Donald Trump levied several rounds of tariffs during his first term, and President Joe Biden kept most of these tariffs in place while adding others. Overall, economists reported that those tariffs had a modest impact on small businesses.

Recently, President Trump imposed 25% tariffs on Canadian and Mexican imports and 10% tariffs on Chinese imports. The situation is ever-evolving. At the time this article was written, President Trump announced executive actions to delay tariffs on all goods from Mexico and Canada that are covered by the United States–Mexico–Canada Agreement (USMCA) until April 2.

As these tariffs reshape the global trade landscape, small business owners must navigate both challenges and opportunities. While these policies could impact their bottom line, they may also drive operational shifts that could benefit small businesses long-term. Understanding the broader effects of tariffs—and implementing strategies to adapt—can help businesses stay resilient and competitive.

Tariffs, counter-tariffs, and the small business impact

The end goal of implementing tariffs is to incentivize companies to relocate their manufacturing operations back to the United States, which would lead to job creation. Additionally, tariff revenue can offset tax cuts and be used as leverage to address issues such as illegal migration or drug trafficking.

I have communicated with several small business clients in our area, and the biggest concern for those that import products is cost. Small business owners that import products from other countries must consider continuing to utilize their current suppliers versus locating alternative suppliers in the United States.  Many have already been contacted by their foreign suppliers and are negotiating how the tariffs will be paid. The U.S. company is ultimately responsible for the tariff, but often, the charge is negotiated between the buyer and seller. With the added cost of imported goods, small businesses need to consider price increases. Regardless of who pays the tariff, it’s an increased cost that ultimately could be passed onto the customer.

While relocating operations to the U.S. could benefit small business owners and the overall U.S. economy, it takes time and a significant financial investment to make this transition. The government offers incentives such as grants, tax credits, and other financial support for businesses to manufacture products in the U.S.

Others are concerned about the possibility of counter-tariffs enacted by other countries on U.S. exports. At the time this article was written, Canada and China have already imposed counter-tariffs, and Mexico’s president said she plans to take action with retaliatory tariffs and other trade measures. As details continue to change rapidly, our team continues to monitor the situation.

Strategies to mitigate impact and offset costs

Small business owners have several options to offset the initial impact of tariffs on their operations:

The first option would be to determine if goods can be purchased from other suppliers to potentially avoid price increases for customers. Small business owners can look for suppliers in the U.S. or other countries that aren’t affected by the tariffs. They can also look to change buying patterns to save money through volume discounts and other measures. If businesses are forced into raising prices, it’s important to make sure customers are aware of the situation and clearly understand the need for the increases. No business likes enforcing price increases. Communication with customers is key.

Changes in cost structure are also opportunities to review your entire organization and look for ways to streamline operations. After COVID-19, many businesses were forced to adjust and identify areas where efficiency could be improved. Saving on overhead costs can lessen the impact of increased prices on goods and services.

Small businesses should also seek out the advice of their advisors. Accountants, financial advisors, and attorneys work with thousands of clients and have a large sample size of strategies that businesses implement relating to tariffs. Several federal and state incentives exist for small businesses, including R&D tax credits, Workforce Opportunity Tax Credits (WOTC), the New York Youth Tax Credits, depreciation incentives, and many others. Advisors can help business owners navigate the various incentives.

Staying in close communication with your bank, investors, and financing sources is very important.  Business owners should review their existing credit lines for potential expansion in the U.S. or to cover cost increases. Financial projections and budgets should be updated to ensure that businesses are properly capitalized.

Conclusion

Business owners should keep in mind that our president is a business owner himself. Negotiation is a very important part of business, and even though the proposed tariffs seem large, don’t be surprised if a middle ground is reached. Staying informed and prepared can make all the difference, regardless of the outcome.

Small businesses are constantly faced with change. The most successful businesses are those that can adapt to it and continue to evolve. The introduction of disruption within a company can spark change, challenge the status quo, or encourage new ideas.

Tariffs will impact some industries more than others, but tariffs have existed since the late 1700s.  It is nothing new, and the small businesses with solid foundations will step up to the challenge and turn this into an opportunity.

John Rizzo is the managing partner of 1RDG, the financial center, which provides businesses with a full range of management, compliance, and advisory services. For more information, please visit 1RDG.com.