Troubled US small businesses highlight severe consequences of tariffs
Illustration: Liu Xidan/GT
CNN reported on Saturday that the US’ 145 percent tariff on China “could crush American small businesses.” John Arensmeyer, founder and CEO of Small Business Majority, said that US small businesses will have to raise prices, cut staff, delay growth plans or shut down entirely just to keep up with the rising costs of imports they can’t source domestically. Meanwhile, a small business owner told CNN that “there’s no facility here that makes what we need.”
These remarks shed light on not only the profound challenges these businesses face due to the US tariffs but also the irony and absurdity of the US’ protectionist policy, which US officials proclaim aim to protect US businesses, but actually hurt these businesses instead.
According to the US Small Business Administration, small businesses employ 45.9 percent of the American workforce, equating to approximately 59 million people. Additionally, they contribute 43.5 percent of the GDP, highlighting their critical role in the US economy. The substantial contribution to both employment and GDP underscores a fundamental truth: the health of the American economy is deeply connected to the vitality of its small businesses. They serve as the cornerstone of job creation, employing Americans of various backgrounds.
The US government’s logic behind imposing hefty tariffs on imports has been well-publicized: by making foreign goods more expensive, it wants to encourage businesses and consumers to turn toward domestically produced alternatives, thereby bolstering local manufacturing and, by extension, the broader economy. Yet, the reality reveals a scenario far more complex and, indeed, distressing for a significant segment of the American economy: small businesses.
According to a report by the Wall Street Journal on April 11, which referenced data from the US Census Bureau, small and medium-sized companies account for $868 billion, or roughly one-third, of annual US imports. This underscores their heavy reliance on imported goods.
The idea that domestic sourcing can simply replace imports and thereby boost domestic manufacturing is misguided. CNN has reported that some small business owners face significant challenges in finding domestic substitutes for their essential materials, some of which “are not made in the US.”
The reliance on imported goods is not a preference but a necessity. A study published on the Bank of China’s website reveals a telling statistic: only 71 percent of goods consumed in the US are domestically manufactured. This discrepancy highlights a critical flaw in the US’ tariff strategy – it presupposes that the US can instantly establish a complete industrial chain. Needless to say, that is unrealistic. Many goods are no longer produced in the country and must be imported. Therefore, rather than safeguarding American businesses, high tariffs on imports pose a direct threat to their survival by increasing costs and disrupting supply chains.
Trade policies disproportionately affect small businesses. Unlike their larger counterparts, smaller companies don’t have the bargaining power needed to secure favorable terms from suppliers. This lack of negotiating strength means that small businesses are hit harder by the cost increases that tariffs bring.
Furthermore, small businesses are not as financially resilient as large corporations, which usually have extensive inventories and cash reserves to cushion short-term impact of tariffs. In contrast, small businesses typically operate with limited reserves, making them more susceptible to the immediate financial strain caused by tariffs.
An article on the US Chamber of Commerce’s website reported that small businesses are sharing their experiences of canceled bookings and rising costs. Even those businesses capable of passing these costs onto their customers are worried that the added costs will affect their competitiveness and profitability, as well as their growth potential.
If the US government continues to adhere to its high tariff policy, the plight of small businesses is likely to hit the US economy, with an especially negative impact on the US jobs market. Economists have already issued warnings about US unemployment. US Federal Reserve Governor Christopher Waller said that firms may begin laying off more workers if aggressive tariff levels are reinstated by the US administration, according to Bloomberg.
The setbacks faced by US small businesses, among other indicators, suggest that the US economy might find it challenging to withstand the negative impact of tariffs in the long term. US policymakers should heed the voices of its own businesses and reverse course on its tariff policy before it gets too late and “crushes” the US economy.
The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn