It’s time to recognize the facts: the US is in a trade war. Some of the victims of the war are almost certainly going to be small businesses and small farms. Maybe even yours.
Even if your small business does not directly import or export goods, you’re still going to pay and pay big. I’ve got nine steps to take now to try and minimize the impact of the trade war we are now in.
First, recognize that these tariffs are going to affect you even if your small business is neither an importer or exporter. It was bad enough when the massive tariffs were on Chinese goods—the US imports $557.9 billion of Chinese goods—but President Trump just announced new tariffs on Mexican goods. Those tariffs start at 5% on June 10, increasing every month, potentially going to 25% by October. The US imports $371.9 billion of goods from Mexico.
Virtually everything you buy in your business—office supplies, electronics, vehicles, the food in your breakroom—is probably imported. Those prices will rise. As prices rise, inflation and interest rates are likely to rise. That hurts your business.
One out of every five small businesses may die in this war. In a May survey conducted by BizBuySell—even before Trump announced additional tariffs—20% of small businesses said they wouldn’t survive if tariffs on Chinese goods lasted another year. That’s massive. The survey also indicated that 42% of small businesses see tariffs raising their costs.
Those numbers may not seem that large—5%, 10%, 25%—but tariffs add up. For example, let’s say a retailer currently sells a pair of pants for $30. How did they get to $30?
- The importer of those pants charges the wholesaler $12.
- The wholesaler marks up the pants by 25% to $15.
- The retailer uses the usual markup on apparel of 100%, making it $30.
Now, let’s see what happens if there’s a 25% tariff.
- The importer tacks on the $3 in tariffs on the $12 price, making it $15.
- The wholesaler marks up the item by 25%, making it $18.75.
- The retailer marks it up by 100%, making it $37.50.
What can you do to help your small business survive in Trump’s trade war?
1. Watch Ferris Buellers Day Off. Can you remember which lesson the exasperated teacher Ben Stein was teaching in the film? Anyone? Anyone? It was about tariffs! And the effect tariffs had on worsening the Great Depression. It may not seem so funny today…
2. Lock in rates with suppliers now. This may be difficult because your suppliers read the news too, and they’re scared of tariffs and higher prices. But like you, they may be eager to sign contracts to protect themselves in an economic downturn. It doesn’t hurt to ask.
3. Buy inventory now, but don’t go overboard. The cost of your inventory will almost certainly rise, but the recessionary impact of tariffs may reduce future sales.
4. Buy needed vehicles, electronics, appliances, supplies now. These prices are going up. Trump’s steel exports have already caused appliances and other steel-heavy goods to increase in price, and experts estimate that if the full Mexican tariffs go into effect, the cost of the average car will go up $1000-$1500.
5. Look for American suppliers. This is a good time to search for American suppliers, even though the costs are likely to be higher.
6.Look for suppliers from non-tariff countries.
7. Take out loans with fixed-interest rates. Increased costs as a result of tariffs are likely to result in inflation and higher interest rates. If you know you are likely to need to borrow funds, do it now.
8. Increase your line of credit. You may not want to borrow now, but it’s good to have funds available to you. If a new Administration arrives in 2021, it’s likely many of these tariffs will be reversed. Having funds available to you may help you survive until then.
9. Find new markets for your export goods. If you’re an exporter, you may have already felt the impact of the Trump tariffs. Some farmers report their exports to China have fallen by more than 80%.
Copyright Rhonda Abrams, 2019
This article originally ran in USA Today on June 5, 2019
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