Summary:
- While tariffs are intended to protect domestic manufacturing, experts highlight they often hurt consumers and small businesses, especially in North Carolina, by raising costs, reducing consumption, and limiting growth opportunities.
- Trump’s tariff rhetoric includes historical inaccuracies and tariffs disproportionately burden low-income earners; small businesses are urged to stay informed, minimize cost increases, and prioritize domestic sourcing where feasible.
On April 2nd, 2025, the second Trump Administration provoked a global trade war by enacting sweeping, universal 10% tariffs on all of the United States’ trade partners, as well as so-called “reciprocal tariffs” of up to 50% on nations other than the People’s Republic of China.
The fallout was immediate. Stock prices across the world crashed, erasing trillions of dollars of wealth. Confidence in the U.S. Dollar as a global reserve currency faltered, as did government bonds. President Trump eventually saw the writing on the wall and called for a 90-day pause on the “reciprocal tariffs.”While keeping the initial 10% universal tariffs, Trump increased the tariffs on China to 145% in retaliation to China’s initial response to the tariffs.
Refresher: What are Tariffs?
Tariffs are a tax imposed by one country on the goods (or services) another country imports. Countries will enact tariffs to “influence [goods imported], raise revenues, or protect competitive advantages.”
Tariffs are used to limit imports, and, in the words of White House senior counsel Peter Navarro, “to fill up all of the half-empty factories that now are operating at low capacities around Detroit and the greater Midwest area.”
As a native of the Toledo, Ohio area, a rustbelt city that manufactures Jeep Wranglers and Jeep Gladiators, I watched firsthand as manufacturing declined in my hometown and neighboring rustbelt cities. It should indeed be an aim of the President and Congress to bring manufacturing to the United States.
However, tariffs are often counterproductive. Take the idea of iPhones being built in America. iPhones, if manufactured in the United States, would cost United States consumers an estimated $3,500.
Why? The United States does not have the manufacturing supply chain infrastructure and labor capacity to build Apple products here. It is an unpleasant reality that the Apple product you might be reading this device on was manufactured with cheap sweatshop labor in Asia.
Fact-checking Trump’s Tall Tales on Tariffs
Trump’s actual tariff intentions reveal themselves in his public comments, however inaccurate they may be.
On the day he termed “Liberation Day,” Trump stated, “From 1789 to 1913, we were a tariff-backed nation and the United States was proportionately the wealthiest it has ever been … Then in 1913, for reasons unknown to mankind, they established the income tax so that citizens, rather than foreign countries, would start paying the money necessary to run our government. Then in 1929, it all came to a very abrupt end with the Great Depression, and it would have never happened if they had stayed with the tariff policy.”
There’s a lot to unpack here.
Many statements Trump made from the White House Rose Garden were inaccurate at best. These facts are crucial to know as background for small business owners, especially if you believe President Trump is trying to “protect” American enterprise.
- For the record, the Gilded Age was not the most prosperous time in American history. The Underwood-Simmons Act of 1913 established a bipartisan federal income tax, after decades of work and the ratification of the 16th Amendment.
- Professor Douglas Irwin at Dartmouth College points out tariffs are a regressive tax (rather than today’s progressive income tax). The progressive income tax that we have today taxes high-income earners at a higher rate than low-income earners. Conversely, tariffs hit low-income earners very aggressively.
- The Underwood-Simmons act reduced tariff rates from 40% to 25%. Tariffs were not abandoned in 1913.
- The 1930 Smoot-Hawley Tariff Act forced international trade partners to respond with retaliatory tariffs, slowing international trade, and exacerbating the Great Depression.
What do Tariffs Mean for NC Small Businesses?
Tariffs will hurt North Carolina’s small businesses.
Gus Faucher, PNC Bank’s Chief Economist, explains that tariffs’ impact on small businesses depends on various factors. The first question a small business owner should ask is if your business has foreign competition. United States manufacturers can increase their prices and revenue as foreign manufacturers are forced to raise prices.
The second question has to do with pricing power: how specialized and “competition-less” your product is. The more pricing power, the more specific and in demand your product is. In Econ 101 terms, is the demand for your good elastic (variable, like luxury goods) or inelastic (think food staples like milk and eggs).
The third question concerns how many foreign products you rely on for your business. If you rely on an input (for example, fabric for clothing) from overseas, you might have to import it for more, and pass the price increase onto the consumer.
More generally, for all small businesses, it is predicted that tariffs will raise prices and force consumers to spend less. Consequently, less consumption reduces profits. Higher interest rates are also likely.
The United States Chamber of Commerce reiterates Faucher’s point: small businesses continue to worry that even when they pass the cost onto the consumer, their sales will fall because of the increased cost of products worldwide. They also must deal with inflation, wage increases, and supply chain delays.
If small businesses choose not to pass costs onto consumers, they will not have the opportunity to grow or invest—the essence of small business and the spirit of entrepreneurship.
Concluding Thoughts
Small business owners should continue to educate themselves on Trump’s ever-changing tariff policies. Unfortunately, this means keeping up with the onslaught of ever-changing business news from the White House. The New York Times’ Economy section delivers great news, as well as the Wall Street Journal’s Economy section.
Additionally, it is suggested to not pass the entire cost of tariffs onto the consumer. Unfortunately, this means cutting other operating costs like capital and labor.
Finally, and perhaps a reasonable purpose for the tariffs, is to encourage buying United States goods. This is not always possible, as the United States only produces certain raw materials. But it is encouraged to buy domestically when you are able.
