By Reshma Kapadia

A wave of earnings warnings in recent days illustrates the potential damage to publicly held American companies from Trump administration tariffs. But for many small businesses, the outlook is much more dire. Small businesses are in survival mode -- often without the cushion and resources of bigger companies to navigate a rapidly changing global trading system.

Chris Pence, co-founder of tableware maker Haand, started the year upbeat. Haand planned to show its pottery at a trade show and begin exporting to Canada. But instead of playing offense, the Burlington, N.C., company is ratcheting down growth plans and cutting costs, after the Trump administration's spate of tariffs and the resulting fallout.

"We feel blindsided," says Pence. "It is hard to identify where the opportunities lie. It's like we are getting hit with a sock full of quarters in the dark."

Distributors worried about tariffs on Canada upended Haand's export plans for the year, forcing it to rein in growth expectations. Haand makes its products in the U.S. but sources premium porcelain from Spain and the United Kingdom for tableware that it sells to the hospitality industry and elsewhere. That critical input is at risk of becoming much more expensive amid the volley of tariffs -- and harder to obtain. Orders that would arrive in one to two weeks in the past are now taking as many as eight weeks.

"Americans live paycheck to paycheck. Small businesses live opportunity to opportunity," Pence says. He says he had to cut wages and 10% of his 24-person staff, something he managed to avoid during the pandemic.

Tariffs have ratcheted higher under the Trump administration across a spate of countries. While President Donald Trump put a pause on sweeping country-specific tariffs on April 9 to try to negotiate deals, a host of others -- including tariffs of 145% on all Chinese imports -- remain in place and additional sector-oriented tariffs are still expected.

For every megacap company like Apple warning of a $900 million hit from tariffs in its June quarter or Ford Motor projecting a $1.5 billion blow this year, there are smaller businesses without the megaphones of high-profile CEOs and lobbyists pushing for exemptions or bailouts, or teams of executives gaming out trade scenarios.

As companies of all sizes warn of disrupted supply chains and empty store shelves, analysts say pressure is building inside the White House. The question is whether de-escalation with China or promised trade agreements will be quick -- or substantial enough -- to address the uncertainty for small businesses.

Voices in the Trump administration in recent days have indicated that the current tariff war is unsustainable and signaled a desire to de-escalate the battle with China. They also suggested that agreements with other countries are forthcoming.

Some 235,000 small businesses import goods or materials representing a third of the total value of U.S. imports, according to the Chamber of Commerce. And 40% of those are like Haand, building their products in the U.S. but requiring raw material or other inputs from abroad.

Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, is worried about the ability of some small businesses to survive. "If you were large, you may have had leverage and the wherewithal to import a lot of stuff to create inventory ahead of tariffs coming," Bradley said at a small-business event hosted by the Chamber of Commerce. "Often, they [small businesses] don't have the reserves to eat the increased cost of tariffs, so they are counting on the ability to pass it on to their customers -- and sometimes that's hard to do."

The disruption and confusion from the biggest trade upheaval in decades is one reason that the Chamber of Commerce pushed the administration to consider an automatic exclusion for small businesses from tariffs so they don't have to worry whether a deal is struck and what tariff level it will come in at, Bradley said.

In a White House statement for small-business week, Trump said that his administration is "cutting red tape, keeping taxes low, promoting fair and reciprocal trade practices, and fighting for hardworking Americans."

In an interview with Fox Business, Small Business Administration chief Kelly Loeffler said she was seeing Trump's agenda benefitting small businesses. She said that Trump was "supercharging the return to Made in America" and the agency was seeing a "tremendous" increase in loan volumes. "Small businesses are spring-loaded," she said. "We still have tax cuts and deregulation to come, a tremendous boost to small businesses."

But any relief is already late for some businesses. Jimmy Zollo, who co-founded apparel maker Joe & Bella in Chicago after helping care for his elderly mother, is battling the trade uncertainty. The company manufactures its adaptive clothing for disabled and older adults in China. The clothing, which includes pants and shirts with magnets to make dressing easier, should fall under a 1972 tariff exemption for goods made for disabled individuals.

But Zollo finds himself in a web of confusion among customs brokers about whether the goods are subject to tariffs and how the levies could affect timing of processing orders. That uncertainty has kept him from buying more inventory for the crucial fourth quarter, which accounts for about half of sales. "By early third quarter, we need to have full clarity on how many orders to place and at what scale," Zollo says.

Making the goods elsewhere isn't feasible, in part because 90% of the world's magnets are mined in China. The rush to diversify is creating capacity issues in alternative destinations such as Vietnam, with some manufacturers turning away companies. Zollo worries that the disruptions -- and trade tensions generally -- could jeopardize his relationship with Chinese manufacturing partners. He says he knows other brands that have lost their partners or that have been approached by larger Chinese manufacturers looking to buy them.

Even those who made preparations for a world of U.S.-China friction and tariffs are scrambling. Abby Perry, who runs Abby's Garden Parties in Zionsville, Ind., tried to build inventory of a specific type of closed container she uses for terrarium-building events such as birthday parties. Worried about a possible price increase due to tariffs, she bought about 200 containers in late March, the most that her budget would allow. When she went to replenish her supply in late April, she was hit with sticker shock: The 50 containers cost $200, but when she went to check out she also found a nearly $150 shipping fee and $350 import charge.

"In the fine print, it said the import cost was subject to change. That uncertainty for me is too much. As a small business, I need to know that if I buy something it's not going to be 200% higher by the time it ships, " Perry says. With just one part-time employee, Perry has had to spend hours scouring online and offline stores for alternative containers.

Rick Woldenberg, chief executive of educational toy maker Learning Resources, started diversifying his supply chain -- about 15% of his products -- from China to Vietnam and India two years ago. When the Trump administration announced its first set of tariffs, he slashed costs.

But his scenario planning didn't include what he calls a "synchronized catastrophe" where the rules are being changed for just about everyone. "We built our supply chain over 40 years. They cut the legs out in seven days and gave me zero minutes notice," says Woldenberg, who filed a suit against the Trump administration, arguing that the tariffs are unlawful.

The Department of Justice asked the court to deny plaintiffs' motion for a preliminary injunction, citing, among other reasons, the jurisdiction of the court over international trade issues and the president's constitutional authority to impose tariffs under the International Emergency Economic Powers Act. The hearing is set for late May.

As the tariffs hit, Woldenberg had his team again explored the possibility of making products in the U.S., digging into the idea of a 3-D printing farm. But that would fall short of the scale needed for the business and send costs flying. Products that sell for $23 would need to be priced closer to $600.

Moving more production elsewhere in Asia is also difficult. Many countries are unable to match the ecosystem built up over decades in China -- a combination of skills, broader production capabilities, and access to components and transportation. And then there's the uncertainty over whether alternative destinations could also be hit with tariffs.

Woldenberg says the company is trying to deepen its relationships in Vietnam and India, shifting hundreds of items to these markets, and halving the number of new products slated for next year from the typical 200 to 250.

"We are evacuating from China," he says. "As far as we are concerned, [production there] is over. It doesn't matter what happens [with a trade deal] because I don't have time to wait and see how it turns out. I'm rolling the dice like I never have in my life."

Write to Reshma Kapadia at reshma.kapadia@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 09, 2025 08:34 ET (12:34 GMT)

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