Tariffs, a form of tax on imported goods, have a significant impact on businesses of all sizes. When a tariff is applied, it increases the cost of materials or products imported from abroad, which in turn can impact pricing, supply chains, and profitability.
For small and mid-sized companies, these effects are especially pronounced since they often have tighter margins and fewer alternatives for sourcing.
Recent trade policies have created new challenges for U.S. businesses across industries. In fact, analysts estimate that by 2025, companies worldwide will incur an additional $1.2 trillion in costs due to tariffs and trade barriers. The tariff impact on business operations can feel overwhelming, but with proactive financial and operational planning, your company can stay resilient and even find opportunities amid the challenges.
Trump’s tariffs refer to a series of import duties first enacted during his presidency, beginning in 2018 with steep levies on key materials, including a 25% tariff on imported steel and a 10% tariff on aluminum. Additional tariffs targeted products like washing machines, solar panels, and a wide range of Chinese imports under Section 301, including electronics, machinery, and apparel. These policies were designed to protect U.S. industries and pressure trade partners, but they also increased costs for American businesses that depend on imported goods.
In early 2025, the administration significantly expanded these measures by imposing a 10% tariff on virtually all goods entering the U.S., affecting everything from raw materials to consumer products. This sweeping policy has prompted retaliatory tariffs from other nations, adding strain to international trade relationships and creating new challenges for companies engaged in global commerce.
Tariffs essentially function like taxes, generating government revenue and influencing consumer behavior by encouraging domestic purchases. Unlike standard business taxes, however, they apply specifically to imported goods, and it’s the importing company that pays the cost.
In practice, tariffs become a direct tax on your supply chain and, without proper planning, can significantly reduce profit margins. See our guide on understanding taxes and tariffs for more about how tariffs compare to other taxes.
Tariffs can ripple through nearly every aspect of a business, from increasing the cost of raw materials to altering competitive dynamics in the marketplace. Whether you run a manufacturing firm, a construction company, or a small retail shop, tariff changes can lead to real-world consequences for your operations.
How do tariffs impact small businesses? The effects are broad and varied:
In the following sections, we’ll dive deeper into the tariff impact on businesses.
One of the most immediate effects of tariffs is an increase in costs for businesses, and small businesses often feel this pinch the most. When a tariff raises the price of materials or products you need, you have a tough choice: either absorb the higher cost and accept lower margins, or pass the cost on by raising prices for your customers. Small firms typically run on thin profit margins, so even a modest tariff can turn a profitable product into a breakeven proposition (or worse).
These cost increases show up in financial statements: higher cost of goods sold, lower gross profit, and tighter cash flow. If you’re a small business owner, it’s critical to track these tariff-related expenses closely. By acknowledging the impact of tariffs on your expenses, you can make proactive choices to protect your business’s financial health.
Tariffs often disrupt established supply chains, leading to ripple effects on both the availability and pricing of goods. Many companies rely on global supply networks, such as sourcing parts from one country, packaging from another, and manufacturing in a third. When new tariffs hit a particular country or product, it can throw a wrench into this finely tuned system. Businesses might face delays at ports or, in some cases, suppliers in the affected country might become too expensive, forcing businesses to scramble for alternatives.
Industries like manufacturing and distribution are especially exposed. For example, a small manufacturer of auto parts might import specialized components from abroad. If those components get hit with a tariff, the manufacturer’s costs go up overnight. They might try to source from a different country, but if multiple manufacturers are all seeking alternative suppliers at once, demand surges and drives prices up further.
By raising costs and altering market conditions, tariffs can directly hit a company’s profit margins and competitiveness. Every extra dollar spent on a tariff is a dollar less in profit, unless prices are raised to pass the cost along. For many businesses, especially small ones, there is a limit to how much of a cost increase can be passed to customers.
Competitiveness is another concern. If your competitors find ways to avoid tariffs (say, by sourcing locally or from untariffed countries) and you don’t, they could have a cost advantage and undercut your prices. This is particularly relevant in manufacturing and exporting.
Eventually, the costs imposed by tariffs make their way to consumers, and this can affect demand for businesses’ products and services. When a tariff raises the prices of consumer goods, consumers feel it in their wallets. Household budgets get tighter, and people may change their buying habits. One study from Yale University’s Budget Lab estimated that the new tariffs in 2025 would effectively cost the typical American household around $1,500–$1,800 in higher prices for the year.
When consumers are paying more for the same goods, they often buy less.
Tariffs may be largely outside an individual business’s control, but companies are not powerless in the face of these added costs. There are several strategies businesses can adopt to mitigate the impact of tariffs and maintain stability:
Let’s explore a few of these approaches in more detail.
In a tariff-heavy environment, robust financial planning becomes more important than ever. Work closely with your accountants or financial advisors to update your business’s forecasts and budgets with an eye on tariffs. This means accounting for the increased costs in your cash flow projections, profit-and-loss statements, and pricing models.
One practical step is to perform a sensitivity analysis on your major products or inputs. Ask questions like: “If the cost of imported component X rises by 15%, what does that do to my margins? Do I need to adjust my selling price, and if so, by how much to maintain profitability?” It’s also wise to review all expenses and see where you can cut costs. Tariffs effectively act as a new expense line, so finding offsets elsewhere in the budget can help balance things out.
Another key strategy is to revisit where and how you source your products or materials. Strategic sourcing means looking at your supply chain with fresh eyes and asking: “Is there a way to get what I need while avoiding or reducing these tariffs?” Sometimes the answer will be yes. For instance, if you currently import a component from a country facing high U.S. tariffs, you might find an alternative supplier in a country with lower (or no) tariffs on that item.
You can also negotiate with your existing suppliers. If you’ve been a loyal customer to an overseas supplier, they might be willing to share some of the tariff burden to keep your business. This could take the form of temporary discounts or exploring ways to reduce costs elsewhere.
Leveraging technology can help offset some of the traffic impact on business finances. Tools like advanced inventory management systems reduce holding costs and prevent expensive rush imports, while supply chain visibility software helps track shipments in real time and anticipate delays. Cost modeling and tariff tracking platforms can also calculate duties automatically and suggest HS code classifications, allowing for smarter pricing and sourcing decisions.
Automation and logistics technology further enhance efficiency by lowering labor costs and optimizing delivery routes. Telematics can monitor fleet performance and schedule preventative maintenance, extending vehicle lifespan and preventing costly breakdowns. AI-powered demand forecasting tools help businesses adjust inventory and ordering strategies to match shifting customer demand caused by tariff-related price changes. Technology acts as an efficiency toolkit that improves visibility, reduces waste, and optimizes operations, benefits that extend across industries like transportation and logistics.
Navigating the complexities of tariffs and their impact on your business can be daunting, but you don’t have to do it alone. Porte Brown helps companies adapt and thrive amid changing tax and trade policies with comprehensive accounting, tax planning, and consulting services. Our professionals stay current on the latest tariff developments and regulatory changes, offering timely advice and tailored solutions. We also assist with financial forecasting and scenario analysis to show how different tariff levels or policy shifts could affect your cash flow and profitability.
With the right planning and support, including tax services and accounting solutions from Porte Brown, your business can navigate tariff challenges and continue on a path to success.