Trump tariffs: Small businesses in America need to pay an extra $202 billion a year

Economic Times

10 hours ago

Synopsis
President Trump's tariff policies are negatively impacting small businesses and farms, forcing them to absorb increased costs. While the GOP tax bill offers some relief, uncertainty persists due to the administration's trade approach.
iStock According to an estimate by the right-leaning US Chamber of Commerce, Trump's levies mean that small businesses will have to pay an extra $202 billion a year on tariffs. The economic policies passed in the first six months of President Donald Trump's term may yet bring a Golden Age, but so far they haven't for small farms and businesses. According to an estimate by the right-leaning US Chamber of Commerce, Trump's levies mean that small businesses will have to pay an extra $202 billion a year on tariffs, which works out to about $856,000 per company on average.Small-business optimism soared on Trump's victory and plunged when he announced tariffs; the right-leaning NFIB Small Business Optimism Index has recovered somewhat since 'Liberation Day' but has yet to reach the heights of Trump's first term in office, and response rates to the survey have fallen, suggesting some business owners may be too busy struggling to remain solvent to complete surveys. The Purdue University-CME Group Ag Economy Barometer index has declined for two months in a row.
Compared with large companies, smaller enterprises are struggling to wait out the vicissitudes of Trump's on-again, off-again tariffs. Democratic Kentucky Governor Andy Beshear told me recently that he is already seeing the impact across his state on small businesses, small farms and consumers alike. 'We're all paying a hidden tax in the form of widespread tariffs,' he said. 'Look, it's not just me saying this. If Andy Beshear, [former GOP Senate Minority Leader] Mitch McConnell and [GOP Senator] Rand Paul are all saying this is a bad idea, it's because it's a really bad idea.'Companies with fewer than 500 employees contribute 43.5% of the nation's gross domestic product. Small family farms still constitute 86% of all farms, according to federal data. But they lack the leverage and resources of larger enterprises and can find themselves at the mercy of forces over which they have little influence.
'They're what economists call 'price-takers,'' Louis Johnston, an economist and professor at St. John's University in Minnesota told me. 'It means you accept the world as it is. You don't have enough power to affect prices and you don't have much wiggle room on wages. You're stuck.' Big businesses, he said, are price-makers. 'They can eat some costs, pass some to consumers, reduce stockholder dividends or shave a bit off wages,' he said. 'If you're small, all you can do is take the hit.' Investors agree, and publicly traded small companies have seen their stocks become less attractive since Trump unveiled his tariff agenda on 'Liberation Day' in April.
Republicans in Congress seem unwilling to place the slightest restraint on a president convinced of his infallibility on tariffs. Many companies are finding themselves in the uncomfortable position of absorbing the increased costs of tariffs, according to Scott Lincicome, director of general economics and trade studies at the Cato Institute. That's not sustainable, especially for smaller businesses, and Lincicome is projecting higher consumer prices this fall. Even before its most recent estimate of tariff costs, the Chamber of Commerce had rung the alarm in a letter to Treasury Secretary Scott Bessent that warned 'small businesses could suffer irreparable harm' from tariffs. 'The Chamber is hearing from small-business owners every day who are seeing their ability to survive endangered by the recent increase in tariff rates.'The GOP tax bill does grant some benefits to small businesses, such as a permanent extension on deductions. Doug Loon, president of the Minnesota Chamber of Commerce, told me that those benefits may become a lifeline. 'It would have put a lot of small businesses out of business if those provisions had not happened,' he said.Loon, a longtime Republican, remembers when his party saw free enterprise as an article of faith. He also recalls that the free-trade era carried its own challenges, particularly for smaller businesses that 'didn't always get a fair shake.' Loon believes that targeted tariffs, skillfully applied, 'can be incredibly beneficial.' Trump's broad-based approach 'has created great uncertainty among our businesses. And that is where disparities can occur.'
Trump portrays tariffs as free money paid by countries that have 'ripped off' America. His new levies have already begun sending billions to the US Treasury. But the reality is that tariffs are a hidden tax mostly borne by US companies and consumers. According to Goldman Sachs data, US consumers have paid 22% of the cost of Trump's tariffs. Only 14% of the cost has been borne by foreign exporters.
The other 64%? Eaten by American businesses. Trump has reset the table on trade. Unfortunately, in his hands, tariffs are a blunt instrument used to punish enemies, reward friends and bully other nations. He substitutes threats and intimidation for negotiations and diplomacy. The deals, such as they are, remain vague, with details often disputed by trading partners.It was just seven months ago that the International Monetary Fund declared the US economy would continue to lead the world in 2025. IMF officials said the US was growing at a faster clip than its economic competitors, with more productive workers and a more welcoming business environment, leaving Trump and the GOP well positioned to capitalize politically on those economic gains.Now, several key economic indicators are pointing in the wrong direction — a scenario largely of Trump's own making. Businesses are struggling to adapt to his ever-shifting landscape of tariffs. Farmers are getting clobbered by higher inputs and they've lost markets thanks to an administration that ended foreign food aid and cut nutrition programs. Meanwhile, the president brags about the revenue tariffs are bringing, as if everyone didn't already know who is really footing the bill.