Small businesses brace for the punishing side effects of Trump's tariffs

Time of India

a day ago

Katrina Golden
, the owner of Lil Mama's Sweets & Treats, got an email this past spring from the Chinese company that supplies her branded paper coffee cups.
Tariffs
were coming, it said. If she placed a bulk order right away, she could lock in the price at the time of $225 a case.
"I would have loved to," said Golden, whose coffee and cake shop operates out of a hospital in downtown Augusta, Georgia. But as a small-business owner, she didn't have that kind of extra cash. "My bottom line wouldn't allow me to."
Across the country, American businesses, workers and families are trying to figure out how to navigate the economic waves stirred up by President Donald Trump's tariff, tax and budget policies. For large firms with big bank balances, workers ensconced in a job and households near the top of the income ladder, the drastic policy shifts will be easier to manage.
But small-business owners like Golden as well as job seekers and households at the lower and middle rungs of the income ladder are in for a rougher ride.
Smaller firms, for instance, not only have fewer resources to weather unexpected costs, they also lack the bargaining power of megastores like Walmart to pressure suppliers to lower prices. They may also lack access to lines of credit available to bigger firms.
Nor can they afford long-term contracts that can keep costs down. Doug and Betsy Scheffel, owners of ETM Manufacturing, a custom sheet-metal fabrication and machine shop in Littleton, Massachusetts, have to buy aluminium and steel on the spot market. Since 50% tariffs have been slapped on those imported metals, their costs have soared.
"I don't know how to put a business plan together that makes any sense to anyone," Scheffel said. Neither do many of his customers, who have delayed or reduced orders.
Legrand Lindor, the owner of
LMI Textiles
, a small medical supply and manufacturing company in Milton, Massachusetts, said now not only did he have to handle the increase in prices, but his suppliers also expected him to handle the administration of customs, duty and taxes.
Both he and Scheffel are members of
Small Business for America's Future
, a nonprofit membership group in Washington that has been complaining about unpredictable tariff policies. The group also worries about a ballooning national debt, cuts in health programs that
small businesses
and their families rely on and tax cuts that disproportionately benefit large corporations.
Scheffel said he had trimmed his staff in anticipation of federal reductions in health care spending because they won't be able to afford either the insurance he offers or the public plan from Massachusetts.
Increasing costs are hitting Golden, too. Overall, she figures the cost of her supplies and ingredients -- flour, parchment paper, napkins, paper plates, forks, butter, sugar, cream cheese, spices, plastic wrap -- is up 20% to 25% since January.
Golden has about a 60-day supply of small coffee cups left, she said. She expects that the price of a case will rise to $300 or $400, from $225, for her next order.
And it's not just foreign-made items. The clam shell containers for single-serve pieces of cake come from an American company. In January, a box of 500 was $55; now it is $69. A 5-pound bag of coffee beans from a local roaster in Augusta is $63, up from $55. And with a new 50% tariff on Brazil, one of the largest coffee exporters, she expects prices to rise even further.
Higher costs and unpredictability are rippling through the labor market. "I would hire two more today if I knew that I could afford to keep them," said Golden, who employs four people. But with whipsaw policy changes, "how do you plan?"
Companies, for the most part, aren't cutting jobs, but they aren't adding many either. And workers, even those fortunate enough to have secure positions, are cautious. Surveys show that more of them are choosing to stay put rather than take the risk of changing employers.
"Employers are kind of putting hiring on hold," said Daniel Hornung, a senior fellow at the Massachusetts Institute of Technology, who was an economic adviser to President Joe Biden. "There's not much churn in the job market."
At the moment, consumers face an overall average effective tariff rate of 18.6%, according to the Yale Budget Lab, up from 2.4% in January.
Ryan Sweet, chief economist at Oxford Economics, wrote in a newsletter that under the president's trade policies and budget priorities, high-income consumers are doing well but lower-income households are struggling.
Oxford estimated that households in the bottom fifth of the income ladder will see their real disposable income decrease by 2.5% to 3% because of higher prices caused by tariffs and cuts to health and social programs. Juicy tax cuts for the richest Americans mean the income of the top fifth will increase by the same amount.
The squeeze is playing out at Lil Mama's. Golden's weekly net revenue once averaged $2,500 to $3,000. Recently, she has been struggling to make $2,000. If something doesn't change within the next three months, she said, she will have to raise prices. Fifty cents to $1 more on a small $3 cup of coffee; $5 instead of $3 for a serving of red velvet cheesecake or banana pudding cake.
"If we fail," Golden said, "that's it. There's no fallback."