Tariffs and Small Businesses: The Economic Tug-of-War You Can’t Ignore

While the current President implements his “on again off again” tariffs, small businesses will still have to deal with the highest tariffs on imported goods in the last 80 years.

On The Small Business Radio Show this week. I talked with Dominick Miserandino, who is the CEO of Retail Tech Media Nexus. He breaks down what the tariffs are, how they will affect consumers and what actions small businesses need to take.

What Are Tariffs?

I begin the episode by asking Dominic to explain tariffs in simple terms for small business owners. Dominic clarifies that a tariff is essentially a tax imposed on imported goods. When a small business imports products, they must pay a percentage of the product’s cost as a tariff to the U.S. government. This cost is typically passed on to consumers, leading to higher prices for goods.

Key Takeaways:

• Definition: A tariff is a fee paid on imported goods.
• Impact on Prices: The cost of tariffs is usually passed on to consumers, resulting in higher prices.

I ask whether the intention behind these tariffs is to encourage domestic production, which could potentially lower costs. Dominic acknowledges that while tariffs can incentivize domestic production, the reality is more complex. For certain products, like coffee, increasing domestic production is not feasible due to factors like climate and labor costs.

Key Takeaways:

• Domestic Production: Tariffs aim to encourage domestic production but are not always practical for all products.
• Feasibility Issues: Some products cannot be produced domestically due to environmental and economic constraints.

Methodology Behind Tariff Calculations

The conversation shifts to how tariffs are calculated. Barry mentions a chart from the White House that outlines reciprocal tariffs, and Dominic critiques its simplistic approach. He explains that tariffs are not typically determined through a straightforward formula and that disparities in trade can complicate the situation. For example, countries like Bangladesh may export more than they can import due to their economic status, leading to skewed tariff implications.

Key Takeaways:

• Complex Calculations: Tariff calculations are complex and not always straightforward.
• Trade Disparities: Economic disparities between countries can lead to uneven tariff impacts.

Market Reactions to Tariffs

I raise concerns about market reactions to the tariffs, noting reports of panic buying among small business owners who may be stocking up on inventory before prices rise further. Dominic agrees, stating that the nature of the business will dictate whether owners can afford to buy in advance. He emphasizes the uncertainty created by tariffs, which complicates business planning and decision-making.

Key Takeaways:

• Panic Buying: Some businesses may stock up on inventory to avoid future price increases.
• Uncertainty: Tariffs create uncertainty, making it difficult for businesses to plan effectively.

Financial Strain on Businesses

I share a personal anecdote about building a guest house and negotiating a fixed price with his builder to avoid tariff-related cost increases. Dominic points out that the unpredictability of tariffs can lead to significant financial strain on businesses, as they struggle to maintain profitability amidst rising costs.

Key Takeaways:

• Cost Increases: Tariffs can lead to unexpected cost increases for businesses.
• Profitability Challenges: Maintaining profitability becomes more challenging with rising costs.

Motivations Behind Tariffs

The conversation then delves into the motivations behind the tariffs. I speculate whether they are negotiating tactics or a means to offset tax cuts. Dominic suggests that the situation is complex, with many moving parts. He warns that the market has already been disrupted, and reversing the effects of tariffs will be challenging.

Key Takeaways:

• Complex Motivations: The motivations behind tariffs are multifaceted and complex.
• Market Disruption: Tariffs have already disrupted the market, making it difficult to reverse their effects.

Listen to the entire interview on The Small Business Radio Show