The Trump administration is imposing tariffs on imports, sometimes in unpredictable ways. This is leading some small businesses to drop plans to expand and hire more workers.
The Small Business Uncertainty index rose to its second-highest level ever, in a survey from the National Federation of Independent Business:
A chart from the FedEx Small Business Trade Index shows small businesses are quite dependent on imports. 42% of small businesses rely “a lot” on imported goods for their business to function, while 46% rely “some” on imported goods for their business to operate. Tariffs increase the cost of these needed imported goods.
As Cato Institute economist Tad DeHaven explains, “Small businesses use imported goods to produce domestic goods. Tariffs increase the cost of foreign inputs and domestic substitutes….Small businesses generally lack pricing power compared to larger firms. Larger companies are better able to absorb cost increases, while smaller firms have more difficulty passing costs onto customers and can lose sales as a result.”
The uncertainty about how many new tariffs will be imposed and for how much leaves small businesses unable to predict what the cost of making their products will be. That uncertainty can be “crippling” for small business expansions, DeHaven notes.
Bloomberg News gives the example of Sanitube:
The family-owned, Florida-based firm makes stainless steel tubing, valves and fittings for food manufacturers. It sources materials from a range of countries, and employs some 20 people. Sanitube has put expansion plans on hold, Adams says, because there’s no telling how much his bills will increase as a result of tariffs — and he needs to conserve cash just in case.
He’s already on the hook for the 10% China duty, and may well be exposed to two separate tariffs due to take effect early March, on metals and Canadian goods. “We are paralyzed as a company,” he says. “Until we have an idea of what tomorrow, next month or this year holds, we’re just sort of in a holding pattern.”
Small businesses know that the tariffs Trump has imposed will increase their costs — like the 25% tariff Trump imposed on many products from Canada and Mexico on March 4, and the 25% tariff Trump imposed on aluminum and steel on March 12.
But they don’t know what further tariff increases will occur, or how long the current tariffs will continue, because the tariffs often defy logic or reflect arbitrary or emotional decisionmaking. Trump has cited a U.S. fentanyl emergency as a basis for imposing tariffs on Canada and Mexico, but that’s a completely bogus reason for imposing tariffs on Canada, because Canada isn’t the source of America’s fentanyl. It is the United States that sends fentanyl to Canada (where it fetches a higher price), not Canada that sends fentanyl to the United States. The United States does get a lot of fentanyl from Mexico, although most of that fentanyl is smuggled in by U.S. citizens, not Mexicans.
Trump administration officials have admitted that some tariffs were imposed because Trump was angry about things Canadians said when complaining about his earlier tariffs. A president being mad about what someone says is not an “emergency” and not a legally valid reason for imposing a tariff. When Trump doubled tariffs on Canadian metals, his White House press secretary “Karoline Leavitt said Trump made the decision based on what the U.S. saw as ‘egregious and insulting‘ comments from Ontario Premier Doug Ford, who had increased energy prices charged by Canada to U.S. consumers in response to earlier tariff hikes by Trump.” But a president feeling insulted is not a national “emergency” that justifies imposing a tariff. And there was nothing “egregious and insulting” about the Premier’s comments.
Trump’s tariffs on steel and aluminum will wipe out thousands of jobs in U.S. industries that use steel and aluminum. Past tariffs on steel and aluminum “resulted in 75,000 fewer manufacturing jobs in firms where steel or aluminum are an input into production,” note two economics professors, by subjecting those firms to “increased costs of inputs” that made their products less competitive. That is far more than the paltry number of jobs gained in the U.S. steel industry due to tariffs on steel, only about “1,000 jobs.”
U.S. tariffs also trigger retaliatory tariffs from other countries. In response to Trump’s metals tariffs, Europe imposed tariffs on $28 billion worth of U.S. goods, and Canada imposed tariffs on $21 billion worth of U.S. goods.
American farmers are being harmed by retaliatory tariffs imposed by Canada, Europe, and China. NBC News reports:
U.S. farmers depend on exporting their products because for many products, like corn, the country produces more than it is able to consume. Foreign buyers are also more willing to buy agricultural products people in the United States don’t want, like chicken feet or cow tongues.
But those overseas markets are now in question as Trump threatens to ratchet up the amount of tariffs charged on products being shipped into the United States — a move that is already causing other countries to retaliate with their own tariffs on U.S. goods…..
Farmers say they are already seeing the effects after Trump put an additional 20% tariff on Chinese imports, after which China responded with an additional 10% to 15% tariff on U.S. agriculture products, including pork, wheat and corn.
