Unless you have spent the last week on the dark side of the moon, you know that Mr. Trump has latched on to one of his favorite issues – trade. With that, he has pushed through new tariffs on aluminum and steel despite the warning from members of his own party and from leaders around the world.
As such, the unanswered question of the impact of these moves comes front and center. While it is easy to look at the impact of trade tariffs on big businesses, it is quite another thing when looking at considering how protectionist measures will affect small businesses. For one thing, many of these companies are focused on their local markets; though the ones who do export could be forced to feel the brunt of any retaliation from America’s trading partners.
Will ‘Trump Tariffs’ harm small businesses? Here are some answers.
Scenario One: Business as Usual
By all accounts, the economy is humming along. Sure, recent tax cuts may have favored big businesses but the reality is that such moves usually do. Even though Wall Street has come out as a big winner, Main Street has benefited as well and small business owners across the country are finally able to breathe a bit easier.
As such, times are mostly good and most experts believe the economy will continue its current growth rate for most of the year, if not longer. Even with the tariffs coming into force analysts such as Morningstar have indicated that the increased costs will do little to impact their ‘base-case forecasts’. Translation, its business as usual and tariffs probably won’t lead to the end of days.
Scenario Two: Trumpageddon is Upon Us
Bear with me, as there is a bit of conspiracy theory and setting one’s hair on fire with this one, but another scenario is that the introduction of tariffs not only kicks off a trade war but also spurs a recession and possibly the end of the international order as we know it.
Sure, most small business owners have no time for this sort of wide-eyed thinking as they are struggling to keep the lights on and customers coming through the doors. However, there is some logic to take into consideration the impact of this scenario – even if the exercise is nothing more than highlighting some potential risks that could impact a business.
The takeaway from this is something which businesses should be doing anyway. Mainly, look for ways to reduce cost – such as checking out the insurance reviews found here to see if there is a way to save money – and find ways to keep existing customers while continuing to attract new customers.
As such, thinking about this ‘worst case’ scenario is nothing more than finding ways to build an advantage in a competitive marketplace.
Scenario Three: Tariffs Will Bite but Life Will Continue
This is probably the most realistic scenario as there are bound to be winners and losers from this latest round of protectionism. In the case of small businesses, it will be those firms who cater to producers in the protected industries (i.e. aluminum and steel) or who are in areas which rely on these industries. In addition, there is also bound to be a small bump for the producers of the raw materials which these industries rely on such as coking coal.
Beyond this, there are bound to be some losers in the U.S. from these measures. However, they are probably in industries you would automatically think of. Sure, the prices of some materials will go up, but in the case of car much of the steel and aluminum is purchased on long-term contract of which months of inventory is usually kept in the U.S. Meanwhile, today’s airplanes use very little aluminum. As such, the increased prices will do little to impact the cost of planes.
Yet like all things in life, there are winners and there are losers. For example, canned consumer products are bound to go up – even if the manufacturers don’t feel the immediate impact of the tariffs. This is due to the lack of purchasing power among consumers compared to large corporates as well as factors which impact price sensitivity.
In addition, several industries might take a hit from punitive tariffs enacted by trading partners. These include threatened tariffs on bourbon, motorcycles, and jeans among others.
But there is another way in which countries such as China and Japan can fight back and that is to stop buying U.S. Treasury Bonds. The two countries currently hold roughly $1 trillion in U.S. debt and if they decided to either stop buying the debtor to sell the bond they currently hold then this would create massive problems for the U.S. economy.
First, interest rates would go up rapidly and this would not only impact the cost of financing for small businesses but it would also make it harder for many to qualify for credit lines and loans. Beyond this, rapidly increasing interest rates have the potential to accelerate inflation which would directly impact the ability of small businesses to purchase more inventory or to make other investments.
In the end, the impact of the ‘Trump Tariffs’ remains to be seen. But get lulled into thinking that it won’t impact your business at some point – as it probably will.