By Rieva Lesonsky
In early March, Goldman Sachs downgraded its prior economic forecast for gross domestic product (GDP) growth for 2025 from 2.4% to 1.7%. According to Jan Hatzius, Goldman’s chief economist, “The reason for the downgrade is that our trade policy assumptions have become considerably more adverse.”
CNBC reports, “Goldman is warning that tariffs could raise consumer prices and tighten financial conditions, while leading companies to delay investments.”
David Kelly, the chief global strategist at J.P. Morgan Asset Management wrote, “The trouble with tariffs, to be succinct, is that they raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity and increase global tensions. Other than that, they’re fine.”
Today’s ongoing tariff wars are not just a problem for big corporations. Increases in tariffs significantly affect small businesses, impacting their supply chains, pricing structures, cash flow, and projected profitability.
To gain insight into how tariffs will affect small businesses, I talked to Carolyn Rodz, co-founder and CEO of Hello Alice, an online platform that helps businesses launch and grow; Ben Johnston, COO of Kapitus, a small business lender; and Colin King, the co-founder of Circle City Capital Group and USA Brands LLC, which owns and manages American-manufactured apparel companies.
How Small Businesses Are Affected by Tariffs and How They Can Respond
Rieva Lesonsky: How will tariffs impact small businesses?
Ben Johnston: Tariffs on the import of foreign goods, including from China, Mexico, and Canada, could over time make manufacturing in the U.S. more economic than importing goods from abroad, which could be good for some industries. But in the short- to medium-term, these tariffs are likely to drive inflation significantly higher and cause significant disruption to the global supply chain, threatening many U.S. jobs at manufacturers, wholesalers, and retailers who rely on the global supply chain to source the components, raw materials, and finished products they sell.
Higher tariffs will certainly cause prices to rise for U.S. consumers, as tariffs drive up the cost of the imported products, which must be passed on to the customer. This will also spur inflation and lower overall consumption, slowing the economy.
Lesonsky: What can small businesses do to survive fluctuating tariffs?
Carolyn Rodz: As with any challenge, small businesses need to be creative about how they respond to tariffs. Looking for alternative suppliers, both domestically and internationally, can offer improved pricing once tariffs are factored in. It makes particular sense to explore suppliers in tariff-free or lower-tariff countries.
Businesses must optimize their pricing strategy, determining how much of the added cost they can absorb versus how much they need to pass along to consumers. Raising prices strategically—by bundling products, adding value through services, or repositioning premium offerings—can help maintain customer loyalty.
I’m particularly focused on grants, small business loans, and relief programs to help bridge the gap where temporary growth capital can ease the added costs. Additionally, negotiating better terms with suppliers or securing more favorable financing arrangements can provide some breathing room.
The long-term potential of reshoring manufacturing is promising, but small businesses need immediate relief. At Hello Alice, we’re working with policymakers to ensure they consider temporary tax breaks, incentives for domestic production, and financial assistance to help small businesses weather the short-term price increases.
Johnston: Significant tariffs on large U.S. trading partners are forcing wholesalers, retailers, manufacturers, and many other business owners to reexamine their supply chains and develop sourcing strategies that reduce the cost of tariffs while still ensuring the timely delivery of goods.
Small businesses have learned from previous disruptions the benefits of shorter supply chains and greater onshore production, and today with the added threat of large tariffs, these benefits are amplified. As a result, we expect to see continued growth in domestic manufacturing and the integration of new technologies that promote automated production. While we expect the growth in U.S. manufacturing and automation to be net positives for the U.S. economy, we are very worried that the pace of this change will be highly disruptive to the global supply chain.
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Identify Suppliers Not Impacted by Tariffs
Lesonsky: Where can small business owners turn to quickly diversify their supply chains?
Rodz: Explore alternative suppliers in countries not affected by tariffs. Trade associations, chambers of commerce, and online marketplaces like Alibaba or ThomasNet can help identify options.
While they may have higher costs, some U.S. manufacturers offer shorter lead times and more predictable pricing. Forming cooperative buying groups with other small businesses can help with negotiating better bulk pricing, or contact small businesses who want to partner with companies in your region and are willing to negotiate pricing.
Third-party logistics and sourcing specialists can also help identify new suppliers and streamline the transition to alternative supply chains, though there’s typically a cost associated with utilizing their services.
Finally, and perhaps most accessible, is tapping into peer groups like Hello Alice or local networks, trade shows, and industry forums, all of which can offer valuable insights into sourcing alternatives.
Johnston: U.S. businesses that import critical goods from abroad should determine if it is possible to source these goods domestically or vertically integrate their supply chains to produce them domestically.
If domestic production proves uneconomic, business owners will need to pay close attention to the tariffs being imposed and the countries they are affecting most. Acting swiftly to relocate production from one country to another could be beneficial. For instance, some countries, like China, are subjected to stiffer tariffs than neighboring nations with similar production capabilities.
Colin King: Many small businesses are slow to make changes. Why? Fear of disruption. Now is the time to explore new suppliers, request quotes, and consider alternatives to strengthen supply chain flexibility. Plus, you don’t need a formal RFP process to ask for quotes and samples from new suppliers, domestic or international.
Is Raising Prices the Answer to Tariffs?
Lesonsky: How much can small businesses realistically raise their prices?
Rodz: Price increases are inevitable, but what matters even more is how they are implemented. Instead of a sudden jump, gradual, transparent adjustments tied to added value, like improved customer service or loyalty perks, can soften the impact. But like with any business decision, consider what your competitors are doing and how much your customer base can realistically bear.
Ultimately, communication is key. If price hikes are tariff-related, a clear message about why prices are going up can help maintain trust. Honesty builds loyalty.
Johnston: Many business owners face the dilemma of whether to raise prices to maintain margins. It is important to know where the competition is priced, what they offer, and how busy they are. If a business is underpricing the market and is busy relative to its peers, it may have room to increase pricing without damaging its customer base. One way to maximize pricing efficiency is to raise standard prices but keep special offerings priced low, offering something of value to the bargain hunters in the customer base.
Another way to implement price increases is to introduce new offerings. New and exciting offerings make it harder to discern specific price increases. Or consider resizing. There may be an opportunity to simultaneously cut the size of the product/package and the price while increasing margin. If some customers miss the larger size, provide an upsized option for a premium. Some businesses have also driven profitability by offering lower-cost but higher-margin items.
King: At our company, we’re taking a multi-step approach beyond “just raise prices.” First, we’re closely monitoring our competition to see how they adjust prices or marketing strategies. Next, we’re looking at our suppliers and constantly searching for new sources. Now is a critical time to reduce supplier concentration and explore new sourcing options, domestically and internationally.
Last, we’ll experiment with pricing. Passing 100% of cost increases on to customers could kill demand, so we’ll play with pricing to minimize the risk of losing too much volume.
I’ve told other business owners to:
- Monitor industry pricing: Small businesses should always track competitor activity—pricing changes, new product offerings, and marketing shifts—but there is no better time to keep a close tab on your competition. Price changes are going to move fast and dynamically. Knowing how competing offerings are changing from a price standpoint is important. It’s usually easier for customers to stomach price increases when “everyone is doing it.”
- Play with pricing: The general advice of “just raise prices” misses the bigger picture. Each company or industry experiences a different impact on their business. Some products or services might be more sensitive to higher prices. For companies with lower costs and less tariff impact, this could present an opportunity to gain some ground against competitors.
Small Businesses’ Response to Tariffs
Lesonsky: How long do you think these tariff wars will last?
Rodz: Great question! Tariff policies are highly dependent on the political climate and international trade negotiations, and right now, we’re seeing adjustments to policy change with little notice. Some tariffs may just be temporary bargaining tools, while others could persist if they align with long-term reshoring strategies, a key political priority for the current administration. I’ve advised small businesses to prepare for extended volatility by building financial resilience and supply chain flexibility into their operations.
Lesonsky: Any other concerns you’d like to address?
King: Get back to financial basics. The last few years saw Covid-driven demand spikes, inflation, rising interest rates, supply chain disruptions, etc., and now we have tariffs. Running a business is like threading a needle while blindfolded. There’s no better time to get back to some core financial fundamentals, such as running lean, sticking to a budget, building cash reserves, and strengthening cash flow management.
Tariffs present new hurdles, but businesses that remain agile, manage their finances proactively, and adapt sourcing and pricing strategies will be better positioned to stay competitive and continue growing.
Rodz: Small business owners can’t afford to be reactive. This means regularly reviewing financials to identify cost-cutting and efficiency improvements, keeping a close eye on policy changes and understanding how they impact operations, and building an emergency fund—whether through diversified income streams, securing financing in advance, or optimizing cash flow—to weather uncertainty.
Tariffs certainly pose some immediate challenges, but they also present an opportunity for small businesses to build more resilient and adaptable operations. It’s a challenge that the most innovative small businesses will accept and overcome.
About the Author
Rieva Lesonsky creates content focusing on small business and entrepreneurship. Email Rieva at rieva@smallbusinesscurrents.com, follow her on Twitter @Rieva, and visit her website SmallBusinessCurrents.com to get the scoop on business trends and sign up for Rieva’s free Currents newsletter.
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