Understanding Tariffs: How Small Businesses Are Affected
The White House announced a new set of tariffs this week, unveiled by President Donald Trump, that will significantly raise import taxes on key trade partners. These tariffs have broad economic implications and have already prompted discussion about their impact on businesses, consumers, and the U.S. economy.
This article is not an opinion piece. All sources are from experts or academic publications. The purpose is to be educational and provide only facts available at this time.
What you can read here:
What tariffs are and explain the specifics of the newly announced Trump tariffs.
Examine Trump’s reasoning and stated goals for these tariffs, citing official justifications.
Materials and goods impacted by the tariffs (with a link to an official source detailing the affected items).
Effects on small businesses, including potential cost increases, supply chain disruptions, or advantages for certain domestic manufacturers.
Effects on consumers, such as price changes and availability of goods. To put this in context, the article will offer a historical perspective, comparing these tariffs to past U.S. tariff actions (including Trump’s previous tariff policies) and what results they yielded.
Long-term economic implications, highlighting expert opinions on whether these tariffs are likely to achieve their intended objectives or lead to unintended consequences.
What’s next? What are the leaders of the impacted countries saying now. How will they retaliate?
What Are Tariffs? Understanding the New Tariff Announcement
Definition of Tariffs: A tariff is essentially a tax or duty imposed by a government on goods imported from another country. In practice, tariffs raise the cost of bringing products across borders.
For example, when the United States levies a tariff on a foreign product, the U.S. importer must pay an extra fee (usually a percentage of the product’s value) to U.S. Customs. Tariffs are considered a form of trade barrier because they make imported items more expensive and less competitive compared to domestic goods.
According to economic experts, tariffs tend to increase prices and reduce the available quantities of goods for businesses and consumers in the importing country, while placing an economic burden on exporters in the foreign country. In short, tariffs protect some domestic industries from foreign competition by raising rivals’ costs, but they also act as a tax on imports that is often passed along to consumers and downstream industries in the form of higher prices.
The Newly Announced Trump Tariffs:
The new tariffs announced this week by President Trump fall into this category of import taxes, and they represent a significant escalation in trade barriers. Under the announced plan, the U.S. government will impose a 25% tariff on most goods imported from Canada and Mexico, and a 10% tariff on goods imported from China. (Notably, certain energy products from Canada will face a slightly lower 10% tariff rate, reflecting their special status in cross-border trade. These percentages are in addition to any existing import duties already in place. The tariffs apply broadly – covering virtually all categories of products coming from the targeted countries.
In effect, this policy means that importers must pay a quarter more for goods from Canada and Mexico, and ten percent more for goods from China, when those products enter U.S. ports. By design, such costs could be passed on through the supply chain, potentially making a wide range of imported items more expensive in the U.S. market.
In announcing these measures, Trump characterized them as necessary for America’s economic and national security. It is also worth noting that these tariffs were described by one non-partisan analysis as “the largest tax increase in at least a generation” in terms of their impact on U.S. consumers, given their broad scope and high rates .
Why Trump is Implementing New Tariffs
President Trump and his administration have cited two primary reasons for implementing the latest tariffs: national security concerns and economic objectives.
Firstly, the administration argues tariffs can pressure neighboring countries—specifically Canada and Mexico—to act more decisively against illegal immigration and drug trafficking. According to a recent White House statement, the tariffs respond to the perceived failure of these countries to effectively prevent unauthorized border crossings and the influx of narcotics, particularly fentanyl precursors from China. President Trump stated explicitly that tariffs are designed to hold these countries "accountable" for insufficient action on these security concerns (White House Fact Sheet).
Secondly, the tariffs align with Trump’s long-standing "America First" economic policy, aimed at correcting trade imbalances and protecting domestic industries. The administration asserts that previous tariffs, such as those imposed on China from 2018 to 2019, brought foreign trading partners like China to negotiations, producing deals like the 2020 U.S.-China "Phase One" agreement, which included commitments from China to increase U.S. imports and protect intellectual property (Office of the U.S. Trade Representative). Trump's team views tariffs as strategic leverage to secure similar concessions now, strengthening the U.S. economy over the long term.
In essence, Trump’s new tariffs aim to use economic pressure as leverage for both border security improvements and enhanced trade conditions beneficial to U.S. industries.
Affected Materials and Goods: What Is Covered
The newly announced tariffs are sweeping in scope, targeting a vast range of imports from the three countries in question. In fact, virtually all goods imported from Canada, Mexico, and China are affected. Below is a breakdown of the impacted materials and product categories, along with an official source detailing these goods:
Imports from Canada – 25% Tariff (10% on energy products):
The tariff covers all products coming from Canada, from raw materials and agricultural commodities to manufactured goods and consumer products. This includes, for example, Canadian steel, aluminum, lumber, automobiles and auto parts, machinery, electronics, and food products. An exception is made for Canadian oil and other energy resources, which will face a lower 10% tariff.
According to the White House, the intent is to apply the tariff broadly unless and until Canada takes sufficient action to address U.S. concerns. An official fact sheet confirms that “25% additional tariff on imports from Canada” will be implemented, underscoring that essentially all Canadian exports to the U.S. – from industrial goods to everyday consumer items – will incur this extra duty.
Imports from Mexico – 25% Tariff:
Similarly, all imports from Mexico will be subjected to a 25% tariff under the new policy. Mexico is a major supplier of a wide array of goods to the United States.
Affected items will span vehicles and auto parts, electronics, machinery, produce and food products, minerals, and more. Everything from Mexican-made cars and appliances to fruits (like avocados and tomatoes) and tequila could see price increases due to the tariff.
The comprehensive nature of this tariff is meant to pressure Mexico on issues like migration and drug trafficking. The White House fact sheet explicitly states a “25% additional tariff on imports from Mexico” as part of the plan, indicating that no major category of Mexican goods is exempt. As of the announcement, Mexico entered negotiations to possibly avert prolonged tariffs, but the tariff is set to apply unless a new agreement is reached.
Imports from China – 10% Tariff:
All goods imported from China will face an additional 10% tariff. In effect, this extends to practically every Chinese-origin product sold in the U.S., given China’s huge role as an exporter.
Key categories include electronics (such as smartphones, computers, and appliances), clothing and textiles, furniture, toys, industrial components and machinery, and much more.
Many of these Chinese goods had been previously spared from tariffs or were taxed at lower rates; the new policy imposes a blanket 10% rate on top of any existing duties. Official communications highlight the 10% figure, noting it as fulfillment of a long-threatened measure to gain leverage over Beijing.
The U.S. Trade Representative’s office had earlier identified thousands of specific Chinese product codes subject to tariffs in the 2018–2019 trade war; this new action effectively adds a tariff to all Chinese imports, including consumer goods that were previously not hit. The comprehensive list of affected goods from China (encompassing over $500 billion in annual import value) ranges from tech gadgets and apparel to household goods and industrial supplies. In practice, any item made in China is now more expensive to import into the U.S. by 10%, as confirmed by both government statements and trade analysts.
Impact on Small Businesses
Tariff hikes of this magnitude will have significant repercussions for small businesses in the United States. In many cases, small and mid-sized businesses are the ones importing affected materials or buying them from suppliers, meaning they will bear much of the immediate cost increase. Because tariffs are applied at the border, it is the U.S. importing company – often a business – that must pay the tariff. As trade experts note, “tariffs are paid for by U.S. companies that import the affected goods and materials,” not by the foreign exporters. This means many small businesses will see their cost of goods go up.
Companies that rely on affordable imported inputs – whether it’s a manufacturer sourcing Chinese electronic components or a local retailer buying Mexican-made merchandise – could face a squeeze on profit margins. Small firms typically operate on thinner margins and have less negotiating power with suppliers than large corporations, making it harder for them to absorb additional costs.
Several key challenges for small businesses emerge from these tariffs:
Higher Input Costs: Many small businesses will pay more for the parts, ingredients, or inventory they need. For example, a family-owned auto parts distributor importing brake pads from Canada will pay 25% extra duty, or a small food company importing Mexican spices will face higher ingredient costs. These increases “can strain cash flow and lead to a decrease in profit margins” for small businesses.
According to the American Small Business Network, companies with tight budgets “have no choice but to absorb these higher costs or pass them along to their customers,” a difficult dilemma that can eat into already thin margins. Some may attempt to switch to domestic suppliers, but domestic alternatives might be costlier or insufficient to meet demand in the short term.
Need to Raise Prices: To cope with costlier imports, small businesses may be forced to raise the prices of their own products or services. A small electronics store, for instance, might mark up the price of smartphones and gadgets (most of which are imported from China) to offset the 10% tariff it paid on those goods. Higher prices, however, risk losing customers to competitors. If larger retailers or chains find ways to keep prices lower (perhaps by squeezing suppliers or accepting lower margins temporarily), small businesses could be at a competitive disadvantage. This dynamic was noted by analysts, who warned that price hikes due to tariffs “can impact customer loyalty… as customers may turn to larger companies or competitors that offer lower prices”.
Supply Chain Disruptions: Tariffs can also disrupt supply chains, especially global ones. Some foreign suppliers might reduce shipments to the U.S. because the tariffs make their goods less competitive, leading to shortages or delays. Small businesses often lack the diversified supply chain networks that big corporations have, so they are more vulnerable if a key supplier or product becomes hard to get. For example, a small boutique that imports custom furniture from Mexico could face delays if those items get stuck in customs due to new tariff procedures or if the supplier pauses exports. Such disruptions can make it “more difficult for small businesses… to get the goods they need,” potentially leaving customer orders unfilled. Fulfilling orders late or not at all can harm a small firm’s reputation and revenue.
Retaliation Affecting Exporters: It’s important to note that trade actions rarely occur in isolation. Targeted countries often retaliate with their own tariffs. Already, Canada responded to these U.S. tariffs by enforcing 25% counter-tariffs on all U.S. goods it imports, and Mexico has threatened retaliatory tariffs as well (though it reached a temporary agreement to delay some measures).
For small American businesses that export – say, a small winery that sells to Canadian customers or a farm cooperative shipping produce to Mexico – these counter-tariffs can hurt sales. If U.S. exports become more expensive in Canada/Mexico, small exporters may lose foreign customers. Similarly, China’s Ministry of Commerce has indicated it will take “countermeasures” in response to the U.S. tariffs on Chinese goods. Past Chinese retaliatory tariffs heavily targeted U.S. agriculture and small manufacturers.
In short, any small business involved in international trade, either as an importer or exporter, is likely to feel the pressure. Those that import face higher costs; those that export may see demand drop if foreign markets close off.
Operational Uncertainty: The sudden change in trade policy creates uncertainty that is itself harmful to small businesses’ planning. Business owners must now decide whether to invest in new supply arrangements, raise prices, or even temporarily halt certain product lines. This uncertainty and risk can dampen new investments or hiring. Some entrepreneurs might hold off on expanding or might shift focus to untariffed markets, altering their growth strategy due to the unpredictable trade environment.
While most impacts appear negative, it’s worth mentioning that a subset of small businesses could benefit: specifically, those that directly compete with imports. For instance, a small U.S. steel fabricator might get more orders as domestic buyers try to avoid paying tariffs on imported steel. In protected industries like steel and aluminum production or certain manufactured goods, reduced foreign competition could lead to higher demand for domestic products. However, such beneficiaries are relatively few.
An analysis by economists Kadee Russ and Lydia Cox found that jobs in steel-consuming industries outnumber jobs in steel-producing industries by about 80 to 1 – suggesting that far more businesses (and workers) rely on using imported steel than on making steel. This imbalance implies that for every small manufacturer helped by the steel tariff, dozens of other small businesses that use steel could be hurt by higher costs. Overall, the consensus among many economic experts is that the tariffs will pose serious challenges to a broad swath of small businesses, even as a few firms in import-competing niches see short-term gains.
Impact on Consumers
When tariffs are implemented, American consumers typically bear much of the cost through increased retail prices. Economic research confirms that tariffs lead companies to pass higher import costs directly to consumers. A U.S. International Trade Commission study found that previous tariffs raised consumer prices between 1.7% and 7.1% in categories such as clothing, automotive parts, furniture, and electronics (U.S. International Trade Commission).
The recent Trump tariffs could similarly affect consumer prices broadly—from groceries and clothing to electronics and automobiles—as tariffs on imports from Canada, Mexico, and China increase costs for retailers and manufacturers. According to the Peterson Institute, the direct cost of these tariffs for an average American household could be approximately $1,200 annually, while Yale University estimates a similar loss of purchasing power around $1,000–$1,200 per household per year (Peterson Institute, Yale Budget Lab).
Additionally, tariffs could reduce the availability or variety of imported products as companies reconsider their supply chains or suppliers withdraw from the U.S. market. Consumers might face fewer choices, longer waits for certain products, or temporary shortages.
Although proponents argue that tariffs may encourage domestic production, potentially leading to job growth in specific industries, economists widely agree that immediate consumer impacts—namely higher prices and reduced purchasing power—are the most prominent and widespread consequences.
Historical Context: Lessons from Past U.S. Tariffs
Tariffs have a long history in U.S. economic policy, providing key insights into their possible effects. Historically, tariffs have often triggered unintended economic consequences and mixed results.
The Smoot-Hawley Tariff Act (1930) dramatically increased U.S. tariffs on thousands of imported goods, provoking retaliatory tariffs from other nations. This led to a significant drop in global trade, which economists widely agree worsened the Great Depression.
In 2002, President George W. Bush imposed steel tariffs (up to 30%) aiming to protect U.S. steel producers. However, while briefly benefiting domestic steelmakers, the tariffs raised costs for steel-consuming industries such as automotive and construction, causing more job losses in these sectors than total employment in steel production. Due to these negative impacts and a ruling by the World Trade Organization (WTO), the administration lifted the tariffs after about 20 months.
President Trump's first-term tariffs (2017–2021) targeted steel, aluminum, washing machines, solar panels, and various Chinese goods. While temporarily boosting specific industries like steel production, the tariffs led to higher consumer prices—washing machine prices rose by roughly 12%, costing U.S. consumers approximately $1.5 billion in one year (University of Chicago Study). Additionally, retaliatory tariffs, especially from China, severely impacted U.S. agricultural exports, prompting billions in government aid to farmers (Congressional Research Service).
Although the Trump administration secured some trade agreements, such as the U.S.-China "Phase One" deal and the USMCA, the broader goals—like significantly reducing trade deficits—remained elusive. The tariffs resulted in an estimated 0.4% reduction in GDP and roughly 300,000 fewer full-time jobs (Federal Reserve Study).
Overall, previous tariffs have tended to impose economic trade-offs, providing limited short-term benefits to specific industries but creating broader, often negative effects on the U.S. economy. Consumers have faced higher prices for many goods, businesses have experienced increased costs and supply chain disruptions, and exporters—especially farmers—have suffered due to retaliatory tariffs. Past tariffs have also generated uncertainty, discouraging investment and hiring, contributing to modest reductions in GDP growth and employment. According to a Federal Reserve study, recent tariff actions under Trump’s first term led to measurable economic setbacks, including an estimated 0.4% reduction in GDP and approximately 300,000 fewer jobs than would otherwise have existed. These historical experiences underscore that tariffs, while effective as negotiating tools or industry-specific protections, carry significant and widespread economic costs.
Long-Term Economic Implications of the Tariffs
Economists and trade experts have expressed skepticism about the long-term effectiveness of the recently announced tariffs, noting significant economic trade-offs. According to the Peterson Institute, sustained tariffs could reduce economic growth, contract the export sector, and disrupt supply chains, prompting companies to shift production away from affected countries. This reorganization, however, introduces inefficiencies, increases business costs, and discourages investment due to uncertainty (Peterson Institute for International Economics).
Another critical concern is the risk of escalating retaliatory tariffs, already indicated by Canada, Mexico, and China. Prolonged disputes would harm globally competitive sectors like agriculture, aerospace, and technology by shrinking export markets and potentially leading foreign buyers to permanently switch suppliers (Congressional Research Service).
Regarding Trump’s national security rationale—addressing drug trafficking and immigration—the efficacy of tariffs is uncertain. Chinese officials have explicitly rejected the premise that tariffs will reduce the flow of fentanyl to the U.S., arguing that the opioid crisis is fundamentally an American domestic issue. Similarly, economists suggest that tariffs may inadvertently worsen economic conditions in Mexico, potentially exacerbating, rather than alleviating, migration pressures.
Experience also questions tariffs’ ability to sustainably boost U.S. manufacturing. Studies of previous tariffs found minimal long-term employment gains in protected sectors, as temporary benefits were offset by job losses in industries relying on imported materials. Increased costs and reduced competition can further harm innovation and global competitiveness.
Supporters argue tariffs provide leverage in negotiations, potentially prompting trade partners to enact systemic changes beneficial to the U.S. However, experts caution that any such successes may not offset broader economic costs. Furthermore, using national emergencies to justify broad tariffs may strain international relationships, undermine trust, and challenge the multilateral trading system, potentially destabilizing the predictable trade environment essential for businesses worldwide.
What's Next: International Responses to the New Tariffs
The recent implementation of 25% tariffs on all U.S. imports of steel and aluminum has prompted swift and decisive reactions from key international partners, notably Canada, Mexico, and the European Union (EU). These measures have been met with retaliatory actions and strong statements from global leaders, reflecting escalating trade tensions.
Canada's Response
Canada has been particularly vocal in its opposition to the U.S. tariffs. On March 12, 2025, Canada announced retaliatory tariffs totaling nearly C$30 billion on American imports, including steel, computers, and sports equipment. This move came after the U.S. imposed tariffs on steel and aluminum to protect domestic industries, leading to a series of global retaliatory measures.
Canadian Foreign Minister Mélanie Joly has been at the forefront of addressing this issue. She plans to raise the issue of tariffs in every meeting and coordinate a response with European counterparts.
European Union's Stance
The European Union has also taken a firm stand against the U.S. tariffs. The EU announced retaliatory tariffs on American products worth $28 billion.
Mexico's Position
While specific statements from Mexican leadership were not available in the provided sources, it is evident that Mexico is preparing its own set of retaliatory measures in response to the U.S. tariffs. The Mexican government has indicated plans to announce its measures shortly, signaling a firm stance against the U.S. trade actions.
Global Implications
The collective responses from Canada, the EU, and Mexico underscore the escalating nature of the trade dispute initiated by the U.S. tariffs. These developments have raised concerns about potential disruptions to global trade and economic stability. The situation remains fluid, with ongoing negotiations and strategic decisions shaping the future of international trade relations.
The international community has responded to the U.S. tariffs with a combination of retaliatory measures and diplomatic efforts. The outcomes of these actions will significantly influence global economic dynamics in the coming months.
In conclusion
The long-term implications of Trump’s new tariffs hinge on a complex trade-off.
Optimists believe the tariffs will successfully compel trading partners to address security issues and trade inequities, ultimately leading to a stronger position for the U.S. and a more robust domestic industry.
Skeptics warn that the tariffs will act as a drag on the U.S. economy, burden consumers and small businesses, strain alliances, and possibly fail to solve the problems they purport to target. As one Chinese official summed up the situation amid talk of trade wars: “there is no winner in a trade war”.
In the months to come, much will depend on whether negotiations prompted by these tariffs bear fruit. If Canada, Mexico, and China make concessions that satisfy U.S. demands, the tariffs might be short-lived and their long-term damage limited.
If not, and the tariffs become a protracted reality, Americans may be facing a sustained period of higher prices and international economic friction. What is certain is that this bold tariff maneuver has set in motion forces that will test the resilience of the U.S. economy and the fabric of global trade relationships for the foreseeable future.
Sources
How Will Trump’s Tariffs Impact Small Businesses? - NerdWallet
Trump Tariffs: Revenue Estimates | Tax Foundation
The economic toll of Trump's tariff war on small businesses
China denounces Trump tariff: 'Fentanyl is America's problem' | Reuters
The economic toll of Trump's tariff war on small businesses
Fact Check: Did the Trump tariffs lower prices for American consumers? | Econofact
5 things to know about tariffs and how they work | PBS News
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
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