What do Tariffs Mean for Your Small Business?

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If you’ve been watching the news at all lately, there’s a word you’ve probably heard mentioned quite a bit: tariff. For a small business owner who isn’t familiar with what it means, it can be scary not knowing how new global trade developments will affect your sales and expenses. Fortunately, you’re not the binary options demo accounts in history to deal with these taxes.

What Are the New Tariffs?

While this kind of levy is not a new economic tool, the recent changes may seem new to business owners who have not experienced the level of implementation put in place by the current administration. The total number of tariffs changes periodically, but historically, they have consisted of a mix of unit tariffs (a set dollar amount on a category of goods) and ad valorem tariffs (a proportional tax).

Why use a tariff? Because these fees or taxes are only assessed on items going in or out of a country, they seek to balance revenues between countries who may sell more than they buy from a nation. Adding a tariff to incoming steel, for example, will boost revenue for the importing country and may help encourage the purchase of lower-priced, domestic products, too.

How Does It Affect You?

Any time a tax or fee is imposed on the goods you use in the normal course of your business, your expenses will increase. For a new start-up, or a company hoping to expand, this extra cost can cause real financial strain, especially if many purchases are made in categories of goods that fall under the new rate. It can be a disadvantage to businesses who spend more in tariffed categories. Companies may have to absorb the cost of business or pass it on to their customers through higher-priced goods and services.

What Can You Do?

While much of the negative forecasting being communicated by anti-tariff groups is speculation, there is a continued reality that tariffs do raise prices — at least in the short-term. For the business that relies heavily on a now-tariffed, imported item to run their business, these tactics may help:

  1. Buy now, if you can. While tariffs go into effect by a specific date, the prices of each tariffed good may go up long before or after the change. If you have the cash flow to stockpile goods or materials before the price change, do so. Use credit to secure supply only if any interest you’ll pay is lower than the inflation rate of the items.
  2. Adjust your processes. It’s unlikely that many companies can switch from steel to another metal (and unlikely that they would want to), but some goods are being made with alternative materials that could get you by in a cash pinch. For companies hoping to make sustainable changes, the tariffs could be just the nudge needed to take the plunge on updating those manufacturing or sourcing processes that they were hoping to make, anyway.
  3. Communicate. In the case that you will have to raise prices for your customers, don’t make it seem unplanned. Let everyone know about your need to charge more, and give them ample notice to adjust their budgets. Make your messaging clear; don’t blame tariffs, specifically, but let them know that the change is related to the cost of doing business.

If there’s any solace in the announcement of new tariffs, it’s that U.S. businesses are all in it together. Look to regional trade organization for industry-specific solutions and use connections to seek out inspiration and sourcing resources during these changing times. There is strength in numbers.

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