‘Everything is about to get really expensive': Small-business owners say Trump tariffs could force them to raise prices

CNBC

4 days ago

"Everything is about to get really f---ing expensive," says Melanie Abrantes, an Oakland, California-based business owner who sells home décor.
Abrantes is one of many CEOs of small and medium-sized consumer product businesses in the U.S. who say President Donald Trump's tariffs could force them to raise prices before the end of the year.
Last week, Trump updated tariff rates for dozens of countries, ranging from 10% to 41% duties that go into effect starting Aug. 7. Goods that are considered to have been transshipped, or shipped through an intermediate country to disguise where they were originally made to avoid applicable duties, will be hit with an additional 40% rate.
U.S. businesses that stocked up on inventory earlier this year are now starting to run out, they say. When they reorder from their overseas manufacturers, they'll need to pay steep import costs.
"While inventory front-running has mitigated the need to raise goods prices, it will become increasingly difficult for businesses to absorb higher import duties as pre-tariff stockpiles dwindle," Wells Fargo economists wrote in a July research report. "We expect core goods prices to pick up further in the second half of the year as a result."
Matt Hassett (who has no relation to the economist Kevin Hassett) runs New York-based startup Loftie. He had five months' worth of his smart alarm clocks in stock in April, when Trump first detailed his tariff plan, he says.
Come September, Hassett will need to import a new batch from Loftie's manufacturer in China, he says. At the current 30% tariff rate, he says he'll likely raise the price of his popular $170 smart clock to $185, an increase of 9%.
"A lot of people think this [tariff] situation is not as bad right now, because all of us business owners had inventory on hand," says Hassett. "It's only just starting to trickle down into actual [consumer goods] prices. I think there's been a false sense of ease about this."
U.S. consumers will experience an overall average effective tariff rate of 18.3%, the highest since 1934, according to new estimates from The Budget Lab at Yale University. The tariffs are expected to cost U.S. households an average $2,400 in 2025, the nonpartisan research center said.
Abrantes, who makes and sells items like bowls, planters and vases made from wood or cork, imports some of her products and materials from Portugal. She says she has already raised her prices by as much as $50 on some products and expects she may need to raise them again before the end of the year. She's considering simplifying her product line — selling fewer or less expensive items — to cut costs, she says.
"I have a premium product that is for a very niche group of people," says Abrantes. "At the end of the day, consumers are not going to be splurging."
Even small price hikes in an uncertain economy can push low- and middle-income consumers away from discretionary purchases or toward cheaper products, a 2024 Boston Consulting Group found.
Small businesses tend to operate with slim profit margins. If consumers pull back, swaths of those companies could close, says Todd McCracken, president and CEO of the National Small Business Association advocacy group.
"Retailers have been able to hold the line on pricing so far, but the new tariffs will impact merchandise in the coming weeks," David French, executive vice president of government relations at the National Retail Federation told CNBC on August 1. "We have heard directly from small retailers who are concerned about their ability to stay in business in the face of these unsustainable tariff rates."
The "direct result of tariffs will be higher prices, decreased hiring, fewer capital expenditures and slower innovation," French said.
The ripple effects could be substantial: Nearly half of working Americans are employed by small businesses, which represent 43.5% of America's gross domestic product (GDP), according to the U.S. Chamber of Commerce.
For months, businesses have been scrambling to figure out a solution to their impending tariff charges. Trump has repeatedly suggested a simple one: Move your manufacturing to the U.S. But business owners and manufacturers say it's not that easy.
Compared to their overseas counterparts, American factories cannot yet offer competitive prices and widespread production expertise. Building that ability could take at least three to five years — or longer — companies said in CNBC's April Supply Chain Survey.
Kim Vaccarella is the CEO of Secaucus, New Jersey-based beach tote maker Bogg Bag. She says her company manufactures its products abroad because domestic options don't provide the same quality.
Vaccarella says she plans to place her next inventory order around the end of the year from factories in China and Vietnam. She may raise prices then, she says, depending on the tariff rates at the time.
"We're trying to salvage what we can of 2025," says Vaccarella. "We don't want to raise prices [but] then realize it's not enough to even cover a portion of the tariffs."
Some small businesses are going into debt to stay afloat, says McCracken. Hassett has already borrowed money and used his personal savings to cover payroll for his company Loftie's nine employees in June, he says.
Other CEOs are using more creative, albeit temporary, methods of funding. Busy Baby, a startup that sells baby mats and teething toys, faced a $35,000 tariff bill when restocking its inventory this past spring, says CEO Beth Benike. So she launched a GoFundMe crowdfunding campaign, which raised $38,000, to cover the costs.
Businesses can't rely on strategies like crowdfunding long-term. If current tariff rates hold, Busy Baby will add a 10% tariff surcharge to every checkout cart on its website upon its next inventory restock, says Benike.
"I've been questioning, 'What is the American Dream?' because I thought I was living it," Benike says. "I served my country, I got an education, I bought a home, I started a business. ... This is not a dream anymore."