Small business stocks buckle under Trump tariffs

Politico

03-04-2025

Corporate America is panicking over President Donald Trump's 'Liberation Day' tariffs. But while much of the attention has focused on major firms, small businesses are poised to bear the brunt of the pain.
Even before Trump's announcement, the mere threat of massive new trade levies had sent a chill through the ranks of small business owners who are responsible for nearly half of all U.S. private sector jobs, more than 40 percent of the economy's annual output, and a third of American exports.
The Russell 2000. which tracks shares of smaller businesses, on Thursday became the first major U.S. index to
crater into bear market territory
— meaning it has plunged more than 20 percent since peaking shortly after Trump's election — as investors braced for surging import costs on Main Street. Those losses have outpaced declines by larger firms included in the S&P 500 and Dow Jones Industrial Average.
Leaders of smaller firms
are likely to be Republican
, meaning Trump arguably has more to lose with them politically than with many other executives opposed to his tariffs. But even larger companies have had little success in convincing policymakers to help relieve the pressure.
'We've seen a parade of major corporations go to the White House urging restraint. It has had no effect,' said Gary Locke, who served as Commerce secretary and ambassador to China during the Obama administration. 'If these titans of industry don't have much influence, how could representatives of small businesses, mom-and-pops?'
Trump's tariffs are coming at a critical point. A small business employment tracker published monthly by the accounting software firm Intuit QuickBooks found that employee headcount at the smallest firms — those with nine or fewer workers — plunged by nearly 100,000 in March,
continuing declines that began last year
. A quarterly confidence index produced by the Chamber of Commerce and MetLife
dipped in the first three months of 2025
. A survey by regional Federal Reserve Banks found that, for the first time since 2021, a majority of small businesses
reported a decline in revenue
.
And when it comes to small business hiring plans, 'I'm not hearing 'growth,'' Richmond Fed President Tom Barkin said in an interview prior to Trump's announcement. 'I'm hearing 'wait.''
Even among respondents to a National Federation of Independent Business survey — which has often been bullish on Trump's agenda —
economic optimism faded last month
.
As the president pledged a series of tariffs, including sky-high levies on autos, steel and aluminum imports, he and top administration officials said the economy could withstand any disruptions or higher prices.
'When the president of the United States is saying that something is going to raise costs, that scares small business,' said Tom Sullivan, vice president of Small Business Policy at the U.S. Chamber of Commerce.
Trump has insisted that his trade plans will yield big gains for U.S. businesses and the economy.
'For years, hard-working American citizens were forced to sit on the sidelines as other nations got rich and powerful, much of it at our expense,' the president said Wednesday. 'But now it's our turn to prosper, and in so doing, use trillions and trillions of dollars to reduce our taxes and pay down our national debt, and it'll all happen very quickly.'
Prior to his announcement, House Republicans said they were unbothered by signs of weakness emanating from the small business sector amid looming tariffs, saying tax reform and deregulation should improve the outlook in the coming months.
Rep.
Roger Williams
, the chair of the House Committee on Small Business and the owner of an auto dealership in Texas, told POLITICO Tuesday that Trump's tariffs can result in better deals for consumers if businesses cut prices to unload their existing inventories.
'I would be hit by tariffs [but I'm] not worried about tariffs, because people like me that have inventories, if we don't sell it, we discount it,' he said. 'The customer's going to get a discount.'
Still, Wall Street economists are warning that Trump's tariff plans and any retaliation could lead to higher inflation, weaker consumer demand and an economic slowdown. If tariffs bring about both higher prices and slower growth, it could saddle the administration with a political problem over what's known as stagflation, a malady the U.S. hasn't seen in more than four decades.
Small businesses 'are very sensitive to macroeconomic conditions,' said Ufuk Akcigit, an economics professor at the University of Chicago who led the development of the Intuit QuickBooks employment tracker. 'They are also typically like the canary in the coal mine. They are the first ones to be affected whenever things go badly.'
Most economists aren't bullish on the ability of small businesses to handle the ensuing tumult. Analysts at Goldman Sachs and JPMorgan Chase have boosted their odds for a recession in the next 12 months, and Wall Street is bracing for weaker first-quarter earnings to reflect the slowdown in investment and dealmaking. Bank of America economists say 'modest stagflation' is the most likely outcome this year, which could limit the Fed's ability to offer businesses relief in the form of lower interest rates.
Bank lending standards were starting to tighten even before stagflation and recession fears started to mount. And small businesses are more reliant on loans than their larger counterparts, said Taylor Bowley, an economist at the Bank of America Institute who specializes in analyzing the institution's small business banking data.
That spells trouble for smaller firms once they start feeling the pinch from higher input costs due to tariffs as well.
'They're not like large corporations,' Bowley said. It isn't as easy for them to navigate shifting supply chains or front-load their inventory orders to get ahead of new trade barriers.
'They operate on very thin profit margins,' Bowley said. 'Frankly, they just don't have the bandwidth or operating expenses to do that.'
Katherine Hapgood contributed to this report.