We frequently discuss the impact of tariffs on the consumer—how import taxes may raise prices on many goods, and make some goods completely unavailable because of tariff-related supply-chain issues.
But today, we want to focus on tariffs through the lens of small businesses.
Running a small business is already an uphill climb against poor odds. A little more than 20% of businesses fail in the first year, per U.S. Bureau of Labor Statistics data, while nearly half fail within five years, and almost two-thirds fail within a decade.
Additional challenges, then, aren’t likely to help those odds—which is why many small business owners are understandably anxious about tariffs. That includes not just the economic impact of tariffs, but also the fallout from numerous months’ worth of rapidly changing tariff policy.
Today, we’re going to discuss some of the ways small businesses are affected by tariffs. While not all negative—some small businesses expect to thrive amid an era of higher import taxes—these are issues that many small business owners are confronting right now.
How Tariffs Could Change How Small Businesses Function
Small Business Majority is a small business organization that engages with more than 85,000 small businesses to advocate for public policy solutions. And it conducts a quarterly survey called “Voice of Main Street.”
In the most recent edition of this survey, a whopping 81% of respondents said they are concerned about the impact of tariffs on their business.
Tariffs can negatively affect companies of any size, but small businesses are particularly vulnerable because they have limited resources, fewer supply-chain options, and far less flexibility to absorb costs. However, tariffs won’t affect all small companies in the same manner nor to the same extent, and a few businesses might even benefit from import taxes.
Here are some changes that small businesses can expect as tariffs become a permanent part of the operating environment.
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1. Increased Costs for Finished Goods + Materials
The Voice of Main Street survey shows that 60% of small businesses are facing higher costs as a result of tariffs, with most stating their costs have increased by between 10% and 25%.
Whether businesses manufacture their own goods or simply import goods to sell, they face a potential hit from tariffs. When small retailers sell products that are imported from other countries, they’re subject to the import levies. But even if they make their own goods, they might rely on imported raw materials from countries that are subject to tariffs.
And either way, much of these costs get passed on to consumers. Nearly a third (31%) of small businesses responded that they either have raised, or are considering raising, prices in response to tariff pressures.
2. Customer Loss + Fewer Sales
In a 2025 survey administered through networking platform Alignable, when asked how they expect U.S. tariffs and foreign retaliations to affect their sales, 43% of respondents said they expect it will decrease their sales.
It’s a genuine concern. Raising prices risks losing customers. No matter how much consumers want to support small businesses, most are ultimately at the mercy of their bank account. So while they might happily choose a small business over a major retail chain when prices are similar, they might not be able to afford to do so when the disparity between prices grows.
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3. Potential for Increased Demand
Of course, if the majority of a company’s products are manufactured domestically with materials sourced throughout the U.S., they won’t have the same pricing issues—potentially giving them a leg up over some competitors. Indeed, in the same Alignable survey, 18% of small businesses said they expected tariffs to result in an increase in sales.
Put simply: Tariffs aren’t necessarily a kill switch for all small businesses—though some might benefit from the damage to others.
4. Health Insurance
“President Trump indicated that the administration will phase in tariffs on pharmaceutical imports—starting with a “small tariff,” climbing to 150% within roughly 12 to 18 months, and eventually rising to as much as 250%—as part of an effort to bring drug manufacturing back to the U.S.”
That’s part of a report from health care nonprofit KFF about how tariffs are driving up health care premiums on small businesses. Insurers need to make medical cost estimates far in advance. So even if the tariffs never reach those higher percentages, insurers could very well err on the side of caution and assume they will—and thus raise premiums in response to just the threat of pharmaceutical tariffs.
While larger companies might be able to absorb some of these higher benefit costs, small businesses have fewer resources with which to do so. Says KFF: “For employers operating on narrow margins, even small premium increases can influence decisions around employer contributions, cost sharing, or continuing to offer coverage at all.”
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5. Supply Chain Issues
Small businesses that mainly or exclusively source from a country subject to high tariffs might seek new suppliers elsewhere.
If they’re able to find comparable American suppliers, that could give the economy (potentially including other U.S. small businesses) a boost.
But finding new, affordable suppliers is easier said than done. It requires locating new suppliers, vetting, setup, and ensuring quality—a time-consuming process. Again, that’s easier absorbed by a large business with resources than a small business without. And it might not even be possible to find a supplier that offers comparable pricing and/or quality.
Also, in some cases, a business might rely on multiple vendors to ensure that difficulties at any single vendor won’t have an outsized impact on operations. If tariffs force a company to a narrower vendor roster, the ripple effect from a disruption could be more severe.
6. Cash Flow Issues
The vast majority (88%) of U.S. small businesses have regular cash flow disruptions, according to a recent survey from online business banking provider Relay Financial Technologies. Approximately one-third of respondents also said they were unprepared to manage an economic or financial downturn, and inflation and trade/tariff actions were cited as the top two external pressures.
Cash flow is a common problem for small businesses as it is. Tariffs can exacerbate that issue by reducing cash flow, sure. But even the threat of tariffs can force small businesses to make difficult decisions that will disturb their cash flow—and a constantly changing tariff environment (like the one we’re currently in) can force a small business into having to frequently make these decisions.
Not to mention, businesses that serve as vendors may also struggle as other companies are forced to put off or constantly change plans to deal with the shifting tariff landscape.
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7. More Administrative Hours
Businesses of all sizes are being forced to deal with customs regulations and increased paperwork as a result of tariffs, and that means more administrative hours need to be spent on these tasks.
These hours are a weight on even the largest of businesses (especially those with significant overseas operations and supply chains), knocking managers and important personnel off their normal duties to wade through additional administrative muck each time a tariff is levied or a “deal” is announced.
But these burdens are amplified at small businesses, where this paperwork could take up an even higher percentage of time from a smaller workforce.
8. Adjustments to Inventory Management
Inventory management is the process of tracking and optimizing inventory to keep costs low, while still meeting customer demand.
Small businesses want to prevent overstocking (having far more inventory than demand) because it increases storage costs, eats up working capital, and can even leaves businesses with obsolete, unsellable products. However, businesses also want to avoid understocking, where too little inventory is purchased and you lose out on sales.
It’s a delicate balance.
Tariffs can affect how small businesses manage their inventory. Some small businesses have decided/are deciding to stock up on more inventory before prices increase. Others might buy less to have more cash saved during times of uncertainty. Either way, tariffs are forcing many small businesses to drastically change their current inventory management, which adds additional risk to their operations.
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9. Lower Profit Margins
Some small businesses might try to fully or partially absorb tariff costs, rather than passing them off as higher prices, to retain their customers. While that might stabilize sales, it could cut into profit margins—sometimes substantially.
Reduced profit margins make it more challenging to invest in new equipment, research, marketing, and other important growth expenditures. It can also make it unfeasible to hire more employees or even continue offering the same number of hours to current workers.
And, of course, if a small business becomes outright unprofitable for long, it might need to shut down operations altogether.
10. Possible Need for Financing
To stay afloat, some small businesses might seek a loan or a business line of credit (LOC) from a bank or credit union—a small financial boost to help them get their footing in the new tariff environment.
Business LOCs and loans can help companies manage cash flow fluctuations, purchase more inventory before prices go up, cover the costs of researching and onboarding new suppliers, and more.
However, that debt must be repaid—and again, the debt is being used not necessarily to grow, but simply to deal with the added burden of tariffs. Debt repayments will eventually become another cost, and even if they manage to stabilize operations, some businesses might be unable to keep up.
