Tariffs: Impact on small business (Me!)
I founded my small business over 12 years, I design and sell scientific products, which are manufactured at our facility in India. Tariffs play an essential role in ensuring fair trade practices and supporting our national defense. When countries like China subsidize certain industries, creating an unfair advantage in the global market, tariffs can serve as a defense mechanism, protecting domestic manufacturers. Tariffs also have a crucial role in national security. However, tariffs should be used thoughtfully, with precision akin to a scalpel, not wielded broadly like a sledgehammer. Here’s why.
How Tariffs Affect Small Business Owners
For a small business owner like me, tariffs directly impact our product costs and pricing. For example, if I design a product with a "landed" cost (which includes freight to the U.S. port of entry) of $50 from India, a newly implemented 10% tariff means an additional $5 in costs. As the importer, I must pay this tariff when the product arrives in the U.S. Without adjusting prices, that $5 would cut into my profit margin, which is unsustainable for a small business. To offset this, I must raise my prices, and this increase cascades down the supply chain, eventually impacting the end consumer. This is a fundamental driver of inflation—and one that can escalate rapidly.
Cash Flow Strain
Tariffs also introduce cash flow challenges. In standard U.S. accounting practices, a tariff is considered part of the cost of goods sold, and this cost is only recognized when the product is sold. However, as the importer, I must pay the tariff immediately upon the product's arrival. This creates a cash outflow well before any revenue is generated from the sale. For small businesses, this gap can result in severe cash flow strain, potentially leading to insolvency and even bankruptcy. As more businesses struggle to survive, inflation can spiral further due to reduced supply…could even be the trigger that launches the US economy into the next great depression.
The Need for Strategic Tariff Implementation
In summary, targeted tariffs are essential for addressing unfair trade practices and safeguarding national security. But large, blanket tariff increases could harm the economy, burdening small businesses and amplifying inflationary pressures. Thoughtful, strategic tariff placement can make a positive impact without destabilizing our economy.
