4 Steps to Understanding Tariffs: Impact on Small Businesses 2025

In this Article:

• What are tariffs?
• How do tariffs affect small businesses?
• Reacting to the tariffs that affect you
• Frequently asked questions

Tariffs have been in the news lately, and it can be challenging to keep up. They’re on, they’re off, they’ll only affect some countries or some products – it’s hard to know what effect they will – or won’t – have on your small business.  

Here’s what you need to know.  

What are tariffs?

According to the Merriam-Webster dictionary, a tariff is ‘a schedule of duties imposed by a government on imported or in some countries exported goods.’ In terms of the kinds of tariffs that are in the news, these are duties imposed by the United States on goods that are shipped into this country from other countries. These can be materials that are then used to make other products, or they may be finished goods that are shipped here to be sold to consumers.  

What is the economic impact of tariffs?

Tariffs on imported goods have the effect of raising the cost of imported goods relative to domestic goods. They can change the balance of global trade by making domestic goods more attractive to consumers. They are also a source of revenue for the country that levies the tariff. Tariffs may increase the appeal of domestic products over imported ones, as the tariff may narrow the gap between the landed cost of products produced overseas and those that are manufactured here.  

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How do tariffs affect small businesses?

While the macroeconomic impact of tariffs may be positive in the long run – although a study by the Tax Foundation indicates they raise prices and reduce economic output – the effect on individual businesses is more nuanced. If you import products for resale or use imported materials to make what you sell, your cost of goods will go up, because even though the tariff is technically paid by the company that is exporting to the United States, that cost is passed on to the purchaser in most cases.  

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Reacting to the tariffs that affect you

Along with consulting your advisors, here are four things you can do that may mitigate the effect of tariffs on your small business.  

1. Know your tariffs. Identify which tariffs will affect you directly. This can be challenging when the information keeps changing, but you can start by noting where the products you resell and the materials you use are made.  
    
2. Identify other sources for tariffed goods. You may be able to purchase from domestic providers, or from suppliers from countries that are not subject to tariffs. It may be best to have three or four different  companies to buy from, in case new countries are added to the tariff list.  
    
3. Adjust your product mix. You can evaluate your product line to see if there are products you can expand on, that are not subject to tariffs. And identify any products that may be too expensive to sell due to tariffs. Your competitors may not be impacted in the same way that you are, so you may need to reevaluate some of your prices to make sure they’re competitive. Another way to reduce the impact of tariffs is to add more service offerings to your business. If you can sell services that align with your product offerings, you may find that’s a low-cost way to increase your revenue without increasing your costs.
    
4. Communicate with your customers. Let your customers know what you’re doing to address tariffs. If there will be price increases or supply shortages, be upfront about them. Customers would rather know about changes that have to scramble at the last minute.  

Tariffs can come and go, and there remains a degree of uncertainty around the proposed actions. Having a backup plan is always a good idea and so is protecting your business from other risks you can’t see coming. If you don’t have business insurance – or think you may not have the right kind or enough of it – Hiscox can help you get what you need. Get a quote today.  

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Frequently asked questions

How do tariffs affect businesses?

Tariffs can raise the price of materials and finished goods that are imported. They can make domestic goods more competitively priced.  

How can I protect my business from tariffs?

Tariffs raise the cost of imported goods and materials, so using domestic sources will keep you from having to pay higher prices for imports. Having multiple sources for the materials your business needs can help.  

Do tariffs increase prices on domestic products?

Not directly, but they can reduce the amount of goods that are available as countries that are subject to tariffs export less.  

The preceding content is for general informational purposes only and is not intended to provide tax, legal or other professional advice. Individuals should consult with their professional advisors for advice on their specific situation. 

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