The Impact of Tariffs on Small Businesses: Navigating Modern Challenges
- Joey Rodriguez-Bordeaux
- May 24
- 6 min read
Updated: Sep 23
Tariffs, defined as taxes imposed on imported goods, have long influenced global trade dynamics. While they aim to protect domestic industries, their economic effects are often complex and contested. This article explores the historical use of tariffs, their current application under U.S. trade policy, and evidence-based strategies for small businesses to mitigate risks.
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Table of Contents:
Navigating Current U.S. Tariff Policies
How Trade Policies Squeeze Small Businesses—And How to Fight Back
The Disproportionate Impact: Small vs. Large Firms
Policy Advocacy & Global Lessons—Empowering Small Businesses
Future-Proofing Strategies—Thriving in the Next Era of Trade Growing Forward
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Historical Impact of Tariffs
Tariffs have historically acted as a double-edged sword in global trade. They offer short-term protection to domestic industries but often lead to unexpected economic consequences. We will examine three pivotal historical examples: the Smoot-Hawley Tariff Act, the 2002 steel tariffs, and the U.S.-China trade war. These examples can help business leaders anticipate risks and develop resilient strategies for today's volatile trade landscape.
The Smoot-Hawley Tariff Act (1930): Protectionism’s Pyrrhic Victory
The Smoot-Hawley Tariff Act was enacted during the Great Depression. It increased U.S. import duties on over 20,000 goods to an average of 59%, aiming to protect struggling domestic industries (Irwin 47). Instead, it ignited a global trade war. Major trading partners like Canada and the European Union retaliated with steep tariffs on U.S. agricultural and industrial exports. This caused global trade volumes to collapse by 65% between 1929 and 1934 (Irwin 112). U.S. farmers, heavily reliant on international markets, saw export revenues plunge by 40%, bankrupting rural businesses and deepening the economic toll of the Depression (Irwin 89).
Key Lesson:
The Smoot-Hawley era is a cautionary tale. It demonstrates the dangers of overreliance on single markets. Today, companies must diversify their export destinations and advocate for multilateral trade agreements to avoid similar cascading disruptions.
The 2002 Steel Tariffs: A Lesson in Supply Chain Vulnerability
In 2002, the Bush administration imposed 30% tariffs on imported steel to protect domestic producers like Bethlehem Steel from foreign competition (Hufbauer and Goodrich 12). While steelmakers experienced temporary relief, downstream industries bore a heavy cost. Automotive manufacturers, construction firms, and appliance producers faced a 30% increase in material costs. This led to an estimated 200,000 job losses across industries reliant on steel (Hufbauer and Goodrich 15). Ultimately, the World Trade Organization (WTO) ruled the tariffs illegal, forcing their repeal in 2003 and damaging U.S. credibility in trade negotiations (WTO 7).
Lesson for Modern Businesses:
Tariffs on raw materials rarely exist in isolation. Companies should audit their supply chains for tariff exposure, advocate for balanced trade policies through industry coalitions, and explore alternative sourcing strategies to mitigate risks.
The 2018–2020 U.S.-China Trade War: Globalization’s Stress Test
The Trump administration introduced Section 301 tariffs on $370 billion of Chinese goods. This marked a dramatic shift in modern trade policy and targeted alleged intellectual property theft and forced technology transfers (Bown 4). China retaliated with tariffs on $110 billion of U.S. exports, causing sales of agricultural staples like soybeans to drop by 75% in 2018 (USITC 45). U.S. manufacturers dependent on Chinese components faced 25% cost increases, prompting companies like Kent International to relocate production to Southeast Asia (Bown 22). By 2019, the U.S. International Trade Commission estimated these tariffs reduced aggregate U.S. real income by $1.4 billion monthly, illustrating their broad economic drag (USITC 21).
Key Lesson:
Trade wars require agility. Firms should leverage free trade agreements (like the USMCA), automate customs compliance, and build redundancies into supply chains to mitigate geopolitical shocks.
Turning History into Strategy
These historical case studies show a consistent pattern: tariffs generate winners and losers within the same economy. For modern businesses, proactive risk management is crucial. This can be achieved by diversifying suppliers, engaging in policy advocacy, and leveraging technology to navigate customs complexities. By learning from history, companies can position themselves not just to endure tariff turbulence but also to seize emerging opportunities in reshored industries and the green energy sector.
Navigating Current U.S. Tariff Policies
The U.S. trade policy landscape is influenced by a combination of legacy tariffs, legislative incentives, and human rights-related restrictions.
Section 301 Tariffs on China: A Persistent Challenge
Policy Overview
The Section 301 tariffs on Chinese imports are a central component of U.S. trade policy in 2024–2025. The Trump administration has continued and escalated tariffs in response to ongoing concerns about intellectual property theft and trade imbalances.
As of May 2025, most Chinese imports face tariffs as high as 145%, with significant cost implications for businesses.
Business Implications
U.S. companies importing from China are facing considerable cost increases and disruptions in their supply chains. The ending of the de minimis exemption has a particularly pronounced effect on e-commerce and small businesses, which previously benefitted from duty-free treatment on low-value shipments. Larger firms must reassess their sourcing strategies, with many accelerating production shifts to Southeast Asia or North America.
Strategic Recommendations
Businesses should conduct an audit of their China-related supply chains, focusing on diversifying sourcing to countries not experiencing elevated tariffs.
The Inflation Reduction Act (IRA): Reshaping Domestic Manufacturing
Policy Overview
The Inflation Reduction Act (IRA, 2022) promotes investment in U.S. clean energy through tax credits for domestic production of electric vehicles, solar panels, and wind turbines. Increasingly uncertain legislative debates are unfolding. The administration has indicated plans to impose new tariffs on green technology imports, particularly from China.
Business Implications
The IRA has resulted in significant capital investment and job creation, with over $115 billion in new projects announced since 2022. However, import-dependent companies report rising costs and supply delays due to IRA-driven demand.
Strategic Recommendations
To maximize IRA benefits, companies should expedite domestic investments and engage in policy advocacy to support ongoing clean energy incentives.
Forced Labor Restrictions: Compliance as a Competitive Edge
Policy Overview
The Uyghur Forced Labor Prevention Act (UFLPA) is a key aspect of U.S. trade enforcement. This law requires that any product with ties to directly or indirectly connected regions is presumed to be made with forced labor.
Business Implications
Companies importing goods linked to Xinjiang face significant compliance audits, resulting in increased operational costs.
Strategic Recommendations
Businesses should establish comprehensive supply chain mapping and engage in third-party auditing to ensure compliance.
Universal and Reciprocal Tariffs: The New Baseline
The Trump administration's new tariff structure, implemented in April 2025, has imposed a baseline 10% tariff on most imports, with additional reciprocal tariffs ranging from 11% to 50%. Such tariffs have heightened overall import costs and complexity in compliance for U.S. companies.
Strategic Recommendations
Businesses must evaluate their import portfolios comprehensively to identify exposure to new tariffs and adjust sourcing strategies accordingly.
How Trade Policies Squeeze Small Businesses—And How to Fight Back
Large corporations often mitigate tariff costs through economies of scale. However, small businesses encounter severe threats from rising expenses, supply chain bottlenecks, and compliance burdens. This section analyzes these challenges using quantitative trends and expert-backed strategies designed for resilience.
The Cost Crunch: Tariffs Erode Profit Margins
Small businesses are particularly affected by tariffs. Approximately 72% of small importers reported an average increase of 22% in input costs in 2023—almost triple the increase reported by large corporations (9%) (NSBA 15).
Expert Insights
“Steep tariff increases against U.S. trading partners could create a stagflationary shock," states Greg Daco, EY Chief Economist. This dual-impact scenario could harm the economy while fueling inflation and market volatility (Daco; Reuters, 2025).
The Compliance Trap: Small Businesses Pay the Price
Navigating trade regulations now costs small firms an average of $34,000 annually, equivalent to hiring a part-time employee (SBA 49).
Analysis
Small businesses must pivot to more efficient compliance techniques to handle ongoing regulatory pressures and avoid falling behind.
The Disproportionate Impact: Small vs. Large Firms
Tariffs disproportionately affect small businesses. As of 2025, the average effective tariff rate on imports has surged to 21.9%, and small businesses face steeper challenges due to limited resources.
Analysis of Effects
These disparities underscore the urgent need for targeted relief efforts to support small businesses through the fluctuating tariff landscape.
Effective strategies include:
Automating compliance processes
Leveraging cooperative resources
Reshoring sourcing options
Policy Advocacy & Global Lessons—Empowering Small Businesses
To thrive amidst the evolving tariff environment in 2025, small businesses must engage in policy advocacy strategies while taking cues from global best practices.
Recommendations
Coalition Building: Join industry coalitions to amplify advocacy efforts.
Localized Campaigns: Engage in grassroots efforts to communicate the impact of tariffs directly to lawmakers.
Public Comments: Actively participate in public comment periods to influence proposed tariff policies.
Conclusion
The tumultuous tariff landscape of 2025 presents both challenges and opportunities for small businesses. Those who embrace innovative strategies, proactive advocacy, and adaptability will not only survive but thrive in a new era of trade.
Resources to Help You
Take Action: Evaluate your organizational options and needs. Schedule Your Consultation.
FAQs
What are the current U.S. tariff rates in 2025?
As of April 2025, a baseline 10% tariff applies to most imports, with higher rates—up to 125%—on goods from China, Hong Kong, and Macau.
Has the de minimis exemption changed?
Yes, the de minimis exemption has been temporarily suspended for certain goods from China and Hong Kong.
How do tariffs affect small businesses differently from large corporations?
Small businesses face higher average cost increases, more frequent customs delays, and reduced capacity to absorb compliance costs compared to large firms.
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For full details and further developments, connect with Intenovate Inc. For those navigating sudden tariff changes and supply chain disruptions, reach out to learn how we can guide you through this evolving landscape.
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