Rebounding from his defeat at the supreme court in February, Donald Trump has recently announced a new round of tariffs, invoking sections of various trade acts to levy amounts on industries and countries based on reasons ranging from “forced labor” to “excess capacity”.
And how are small and medium-sized businesses in the US reacting? One word: snoozefest.
For context, my firm has hundreds of clients who are small and medium-sized. I’m also a professional speaker and present to literally thousands of business owners across many industries at associations and conference events. Last year I was frequently asked to discuss tariffs to these groups. This year that topic is not even on the agenda. People don’t care. Why?
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For starters, the new tariffs announced aren’t as big as before.
Remember “liberation day”, when tariff rates ranging anywhere from 10% to 50% were being ultimately assessed? Remember how products coming from China were subject to rates as high as 145% at one point. As recently as February, tariff rates on Indian goods were as much as 50%.
Those numbers were significant and had an impact on many of my clients. But the new rates are much lower, generally ranging from 10% to 12.5% (although higher rates are being assessed on certain products and countries). Already the administration is carving out exemptions. It’s not nothing. But they’re way below previous attempts and more manageable.
And refunds from the last tariff attempt are helping.As I write this, approximately $122bn in refunds have been accepted and are due to be paid. I was skeptical that this was ever going to happen, but it’s happening. The process is bureaucratic and doesn’t include all the tariffs paid (yet), but a number of my clients have seen money returned to them through their original customs brokers.
Now their biggest problem is making sure they’ve estimated enough taxes to be paid on this unexpected windfall. The experience not only has helped many companies’ bank accounts, but also gives them confidence that there is a process for overturning these actions.
Which brings me to the next reason why tariffs aren’t as big a deal this time: lawsuits. They’re inevitable. In fact, a few small businesses already filed suits contesting the president’s latest round of levies. We’ve learned that the court system works. The appeals process is reliable. The supreme court actually cares about the law. And – despite the protests and marches – our “king” actually behaves more like a president and complies with the courts when he loses a case there.
Given the way the administration has handled so many other big challenges (Hello, Iran? Immigration enforcement?) I – and a number of my clients – have confidence that the plaintiffs’ attorneys will find many holes in how these new tariffs were implemented and the likelihood of repeal is pretty strong.
One thing that can’t be denied about American entrepreneurs: they’re innovative. I’ve seen this in practice over the past two years as a number of them dodged, danced and navigated their way around the many tariff bombs hurled their way. They moved products to bonded warehouses. They leveraged their data and got better at targeting their pricing. They pivoted to technology for cost savings elsewhere in their business. They scrambled to find alternative suppliers and to do more domestic assembly and manufacturing. New tariffs will simply be another incentive to exercise these options and explore others, and businesses are less fearful of the impact than they were in the past.
Most of the businesses I know, regardless of industry, have seen their production, delivery and operating costs increase anywhere from 20% to 40% since Covid. It’s been a massive change. Energy prices are contributing to this. Inflation caused by government spending is another. Supply chain issues aren’t helping. But the fact is that tariffs are just a small part of that. When small businesses are asked if tariffs are hurting their margins they’re likely to say yes. But not as much as some other factors, which mutes their overall impact.
Back when he first took office it seemed like the president was announcing new tariffs, changing his mind, increasing them, decreasing them, removing them – it all got a bit much.
Yes, more tariffs will be announced. But there’s a process required by the trade acts he’s invoking to get these tariffs approved. That provides time to figure out a response. Things are still relatively uncertain because … well, Trump. But the uncertainty caused by his behavior has muted a bit. That’s good news for any business owner making their plans.
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When the president announced his initial round of tariffs, the media was wringing its hands over the countless small businesses that would be affected. I remember the bike shop owner who bought all of his supplies from India, the wine merchant who specialized in French products and the woman who ran a specialty shoe site online using shoes from China. Yeah, they were screwed. Hopefully they received refunds and – more important – diversified their supply chains. But most small businesses don’t buy their products overseas. These are pizza shops, auto mechanics, dry cleaners, architects, accountants, healthcare providers. Tariffs didn’t affect them very much or at all. Same for this time.
Tariffs are annoying, disruptive and in many cases unnecessary. But the latest round won’t be as impactful, if they happen at all. US business owners are just taking them in stride.
