Trade war tariffs expose U.S. small business

The rising risk of a global trade war is exposing a critical asymmetry in American business: while large corporations can absorb costs or pivot supply chains, small businesses face an existential squeeze.

They're caught between razor-thin margins and price-sensitive customers, with none of the lobbying muscle to secure exemptions. It's economic Darwinism in action.

So what?

• Market dynamics are creating a dangerous multiplier effect, where small businesses lack both pricing power and supply chain flexibility, amplifying tariff impacts beyond simple cost calculations.
• Inauspicious timing: with household debt increasing, 7% mortgage rates, inflation stubbornly above Fed targets, and consumer sentiment in decline, tariff-driven price increases could trigger a demand collapse in price-sensitive segments.*
• Front-running strategies (like Mighty Microgreen's inventory stockpiling) offer temporary relief but mask deeper strategic vulnerabilities in small business cash flow management.
• The policy's stated aim of reshoring manufacturing collides with ground reality. Small businesses like Florida-based Sanitube are freezing expansion rather than investing in domestic capacity.
• Traditional trade war mitigation strategies (like Vietnam-shifting) won't work this time because the multi-front approach deliberately closes arbitrage opportunities.

What's next?

Conventional wisdom sees this as a US-China trade story, but what if it's a fundamental restructuring of American business?

Small businesses have historically succeeded by being nimble and customer-responsive. But blanket tariffs create a capital intensity requirement that favors scale over agility. Large corporations can weather the storm through financial engineering and political influence.

Rather than reviving American manufacturing, these tariffs could accelerate consolidation across sectors. When Basic Fun Inc! can't absorb a 10% hit but Hasbro can, we're not protecting American business. We're picking winners based on balance sheet size.

Counterpoint

What if the real story isn't about trade at all, but about accelerating the emergence of a barbell economy where only the biggest and most specialized businesses survive? That's the strategic conversation we should be having.

Source: Trump’s Tariff Wars Leave US Small Business With Nowhere to Hide (Bloomberg)

* Notwithstanding downside risks intensifying, aggregate economic data shows a strong consumer. See Torsten Slok's (Apollo) Daily and weekly indicators for the US economy.