Trump Tariffs Crush Small Businesses: "We Are at the Limit", Optimism Sinks

Small businesses, unable to make operational changes, are "at the Limit" of what they can take from Trump's tariffs.

Small businesses lack the wiggle room to absorb cost increases or shift production, and many are reevaluating plans and strategies: ‘We Are at the Limit’ say business owners.

M2S Bikes, an electric-bike startup, planned to build itself a 100-strong dealer network. Then came the Trump administration’s proposed tariffs on China. The firm, which employs five people in Asheville, N.C., imports the bikes it designs from a factory in Jinhua City, China, and says it can’t find comparable motors in the U.S. The tariffs, if they go into effect, would add $425 to the cost of its bikes. The dealership idea is now on hold while the company tries to figure out a new wholesale price that dealers will accept and that won’t kill its profit.

The U.S. has imposed 25% tariffs on $34 billion of Chinese imports, plans soon to levy similar tariffs on an additional $16 billion of goods and has announced it is considering duties on $200 billion more. China has started to respond in kind and is threatening to impose tariffs on up to $110 billion of U.S. goods if Washington moves ahead.

The impact is now rippling through the U.S. economy, and it is being felt particularly acutely by small businesses and startups. Compared with larger companies, they have less ability to deflect higher materials prices or pass along new costs to customers. Tariffs throw a wrench into pricing calculations and eat into profit margins. Smaller firms also are less able to shift production to other locations and have smaller reserves to draw on when times get tough.

Brilliant Home Technology Inc., a three-year-old Silicon Valley startup, had planned to launch its Wi-Fi-connected “smart” light switches in September at a price of $249. The threat of 10% tariffs on Chinese-made electronics forced the 30-person company, which is backed by $21 million in venture capital, to boost the price to $299.

Company co-founder Aaron Emigh said the latest proposed increase in tariffs to 25% put him in an even tougher spot and could force him to seek another round of funding. “We are at the limit of what we believe we can charge,” he said. Moving manufacturing out of China isn’t practical, he said.

Aluminum tariffs are causing Nebia Inc., a San Francisco startup with 11 employees, to consider shifting manufacturing of its $399 spalike shower heads to Mexico from Minnesota, said Philip Winter, the company’s CEO. “It puts us in a really tough place,” Mr. Winter said. The four-year-old company had already been trying to lower its costs and prices to boost sales. Now, he said the company is also looking into shifting parts away from aluminum, which accounts for 40% of its costs.

Losing Faith

The article cited many more examples of small businesses getting clobbered by Trump's inane tariffs. As I have commented before, if Trump continues, his tactics are likely to cost Republicans the House and possibly even the Senate in November.

Musical Tribute

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Mike "Mish" Shedlock

Comments
No. 1-17
ML1
ML1

When Trump puts tariffs on steel and aluminum he should also at the same time raise tariffs on PRODUCTS made from steel and aluminum so production is not offshored and foreign competitors do not take market share from US manufacturers.

ML1
ML1

M2S Bikes is a company of 5 guys who planned to slap their logo on Chinese made electronic bikes and make a fortune. Europe has many of these companies importing Chinese made electronic bikes and putting their own logo on them either at the Chinese factory when buying as private label or afterwards.

ML1
ML1

Brilliant Home Technology used a "threat" of 10% tariffs as a reason to raise prices by 20%...

The company leadership is either totally incompetent or is trying to use Trump as a reason to raise more money after they frittered away the earlier money without much of anything to show for it. Maybe Elon Musk will be the next one to complain and tell people Tesla needs more funding because of Trump like Brilliant Home Technology is doing.

Carl_R
Carl_R

Any company that tries to manufacture in the US, and which uses steel, aluminum, or chips as a part of their product is going to be hurt, and likely put out of business, by the tariff, unless they move their production overseas. That's a given. Nothing here is surprising.

ReadyKilowatt
ReadyKilowatt

Interesting blog post about how tariffs aren’t just the added fee, but all the screwy accounting and billing needed just to keep track of them.

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