Tariffs: The impact on small businesses and three ways to protect your margins

Key takeaways

• Tariffs lead to higher import costs and can directly impact your pricing and margins.

• Small businesses are more vulnerable to the impact of tariffs, facing higher costs of goods, supply chain disruptions, and reduced global competitiveness. 

• Modern fintechs like Airwallex can help you keep costs low and streamline payment processes, so you can adapt quickly and stay resilient in times of uncertainty.

Imagine this: You just placed an order with your trusted overseas supplier, whose pricing fits neatly into your margins. Then, an email lands in your inbox: Your order will now cost 25% more due to the new tariffs. Suddenly, a profitable product line is under pressure. Do you absorb the cost, raise prices, or scramble to find a new supplier – all at the expense of your bottom line?

This is the reality that many small businesses face when external factors, like new tariffs, can cause unexpected shifts overnight and impact your costs, supply chain, and ability to stay competitive. Higher tariffs can raise the cost of your goods, disrupt your supply chain, and even reduce demand for your products.

While these shifts present challenges, they also create opportunities to improve supply chain flexibility and diversify in new markets. With the right strategies, tools, and financial partners, businesses can adapt quickly and stay resilient through global economic uncertainty. 

In this article, we’ll cover what tariffs are, how they impact consumer prices, and the challenges they pose to small businesses. We’ll also explore strategies to mitigate the impact of tariffs, so you can protect your bottom line and stay resilient.

What are tariffs?

Tariffs are taxes on imported goods that a government imposes. A tariff increases the price of an imported product, making it more expensive than a similar domestic product. When a government imposes a tariff, domestic businesses importing affected goods will have to pay the tariff, an additional cost that eats into their margins. 

Governments usually impose tariffs to raise import revenue, protect domestic industries from foreign competition, or gain leverage in trade negotiations. 

For example, the United States' recent tariff changes aim to steer consumers and businesses towards domestic products. This protective stance isn't unique to the US, as many countries do employ tariffs to protect local industries, preserving jobs and economic stability.

The effects of tariffs go beyond just economic issues. When one country imposes tariffs, it can lead to other countries retaliating with their own tariffs, causing tension in diplomatic and trade relationships. This can create a volatile and unpredictable global trade environment, affecting businesses and consumers worldwide.

How do tariffs affect prices?

Tariffs raise import costs and put pressure on your margins. Some businesses may choose to absorb these costs to maintain competitive pricing, but this comes at the cost of reduced margins. Large corporations often have the financial cushion to manage these costs, but small and medium-sized businesses need more strategic solutions.  

Small businesses face the dilemma of sustaining a very slim margin or raising prices. If they choose to pass on ‌costs to their customers in the form of higher retail prices, they may end up losing price-sensitive customers. When customers find themselves paying more for the same products, it can reduce their confidence and loyalty to the business. 

Tariffs can also spark a cycle of escalating costs and prices. When one country imposes tariffs on another country’s imports, the affected country may retaliate with its own tariffs, resulting in a trade war. Not only does it become more expensive for you to import goods, it also becomes more challenging for your products to remain price competitive in other countries. 

How tariffs may impact small businesses

Tariffs can drive up costs, disrupt supply chains, and reduce global competitiveness. Besides higher import costs, you may also face delays in shipments and supplier shortages, which can slow down operations and strain your cash flow. If you sell internationally, you may risk losing customers in light of retaliatory tariffs abroad that make your products more expensive. 

Higher cost of goods

Small businesses often operate with tighter margins and less pricing flexibility, making them more vulnerable to tariff increases. Even a modest rise in import costs can significantly erode margins and strain cash flow.

Unlike larger corporations, smaller businesses may lack the scale, supplier diversification, or financial reserves to absorb higher costs – or to negotiate better terms with vendors. While some companies may be able to pass increased costs onto customers, doing so risks losing price-sensitive buyers, especially in highly competitive markets.

In sectors like retail, where margins are already narrow, steep tariffs can force smaller businesses to raise prices beyond what customers are willing to pay – potentially pricing themselves out of the market. For example, ‌‌recent US tariffs on Chinese imports have raised costs across a broad range of categories, including electronics, consumer goods, and industrial components. These added costs can lead to higher shelf prices and intensify competition among local players.

Supply chain disruptions

Tariffs can disrupt the global supply chain, making it more difficult for you or your suppliers to get the goods you need. New tariffs can cause delays at customs, changes in shipping routes, or even supplier exits from certain markets. 

At customs, suppliers might need to manage extra paperwork, approvals, or inspections to comply with new regulations. This can slow down the process, making it difficult for you to fulfil customer orders on time, which can lead to a loss of revenue and customer trust. If you run on a lean supply chain with minimal inventory, even a small delay can significantly disrupt your operations and cash flow.

While large businesses can often shift their sourcing or negotiate better terms with suppliers, small businesses with less leverage and tighter supply chains may not have these options. 

Suppliers may also leave certain markets if tariffs make it unprofitable. If this happens, you may have to find new suppliers quickly, and could end up with longer lead times and higher costs. If many businesses are seeking new suppliers at the same time, suppliers may become overwhelmed, resulting in bottlenecks and delays.

Reduced global competitiveness

Tariffs can also impact your exports. Reciprocal tariffs from other countries can make your products more expensive to international customers in other markets. This can put you at a disadvantage compared to local businesses abroad, making it harder to grow your international customer base.

How to mitigate the impact of tariffs

With higher tariffs, you need solutions to mitigate the impact of tariffs on your costs, supply chain, and global competitiveness. Let’s look at how you can source goods from suppliers cost-effectively, boost your global competitiveness, and keep costs low when managing multi-currency transactions. 

Source from suppliers in low or no-tariff markets

Sourcing from low or no-tariff markets is a direct way to avoid ‌higher import costs. If switching suppliers entirely isn’t feasible, consider diversifying your supplier base across different markets. This approach spreads your exposure to tariff risk and builds a more flexible, resilient supply chain.

Switching or setting up new suppliers across borders can be complex – navigating contracts, timelines, and regulatory requirements. Making international transfers can add to the complexity if there are delays, high fees, and multiple intermediaries slowing things down. 

Choosing the right payment solution can simplify the process while keeping costs low. Look for a payment provider that lets you pay suppliers like a local business, using local payment rails. This way, you save on international transfer fees, skip costly intermediaries, and settle payments quickly. Timely supplier payments can strengthen supplier relationships and keep shipments on track.

Some modern fintech solutions also offer business debit cards linked to multi-currency wallets, with no international fees. You can use these cards to pay international suppliers in their local currencies, avoiding the high fees that some local banks charge.

Diversify risk by expanding to new markets

If tariffs are shrinking your margins in certain markets, growth opportunities may lie elsewhere. Expanding to markets with lower or no tariffs can reduce your reliance on tariff-heavy markets. You can maintain competitive pricing, protect your margins, and unlock new revenue streams amidst global uncertainty.

But succeeding in new markets isn’t just about logistics – it also requires understanding local consumer behaviour. Customers across regions have their unique spending habits and payment preferences. Data from our recent research with Statista shows that a majority of customers in Asia and Europe prefer digital wallets like Google Pay, while customers in New Zealand prefer credit and debit cards. Providing a checkout experience that feels familiar can reduce checkout friction and drive higher conversions, helping you to succeed in new markets.

To deliver these experiences, it's essential to partner with a payment service provider that lets you offer a localised experience tailored to each market. This includes displaying prices in local currencies, offering local payment methods, having flexible checkout options, and more. Our platform, Airwallex, offers a suite of payment solutions that let you start accepting payments in minutes – from no-code solutions and low-code eCommerce plugins to fully customisable API solutions.

Reduce currency risk with multi-currency accounts 

Widespread tariffs can cause trade tensions to arise and currency fluctuations to become volatile. Managing multi-currency transactions means dealing with frequent currency conversions, and conversion fees can add up quickly. Unfavourable foreign exchange (FX) rate movements can make conversions more expensive, further eroding your margins.

A financial provider that offers multi-currency accounts can help you manage currency risk and reduce FX costs. When you receive, hold, and settle payments in the same currency, you eliminate unnecessary currency conversions altogether. 

For example, if you earn revenue and pay suppliers in EUR, you can receive and hold these funds in a EUR account, then pay your suppliers directly with the same funds. This like-for-like settlement eliminates forced conversions, protects your margins from exchange rate fluctuations, and simplifies your international payments.

Protect your margins and stay resilient against global economic uncertainty

There’s never been a more important time to keep your business running smoothly. Our platform, Airwallex, offers a comprehensive suite of financial solutions to help you manage the impact of tariffs and stay resilient amidst changing economic conditions.

With Airwallex, you can keep costs low as you diversify your supply chain and continue to expand globally. A single Airwallex Business Account gives you access to local bank details, allowing you to operate like a local business in 60+ countries. Receive, hold, and settle funds in multiple currencies. 

Save on FX costs by settling your funds like-for-like into our multi-currency Wallet, eliminating unnecessary currency conversions. Pay your suppliers later from the same balances, no currency conversions needed. And when you do need to convert funds, do so at market-leading rates – all on one platform. 

Pay international suppliers in 150+ countries. With 120+ countries leveraging local payment rails, your funds can arrive as quickly as within one day. Using our multi-currency Visa debit card, you can make global payouts with 0% foreign transaction fees, further trimming costs. 

With our global financial infrastructure, you can tap into new markets and build a wider customer base at speed. Start accepting payments in minutes with our low and no-code solutions. Together with our robust payment capabilities, you can accept payments in 130+ currencies via 160+ local payment methods and major card schemes like Visa, Mastercard, and American Express. 

Resources for monitoring tariff changes

Tracking tariff developments helps you stay one step ahead in protecting your margins. You can find reliable updates through government websites and industry associations. 

To stay updated on the US tariffs, refer to:

• Government websites like the US International Trade Commission (ITC) and the Office of the United States Trade Representative (USTR) for updates on tariffs, trade policies, and market impacts.

• Industry associations such as the National Association of Manufacturers (NAM) and the Small Business & Entrepreneurship Council (SBE Council) for tailored insights, expert analysis, and opportunities to connect with others navigating similar challenges.

Frequently asked questions

1. Which industries do tariff changes impact more?

When tariffs go up, the retail, manufacturing, electronics, and agriculture industries usually feel the biggest impact.

2. How do tariffs affect businesses over time?

Tariffs can erode profit margins, drive up prices, make it harder to sell overseas, and put pressure on small businesses to find new suppliers and markets.

3. How can small businesses adjust their supply chain to avoid tariff costs?

You can diversify suppliers across low or no-tariff markets to minimise dependency on any one market, building a more flexible and resilient supply chain.

4. What financial strategies can businesses use to mitigate tariff risks?

Look for a financial provider that offers solutions to help you keep costs low, such as multi-currency accounts that let you receive, hold, and settle payments without forced currency conversions. 

5. How do tariffs affect the global economy?

Tariffs can disrupt global trade flows, spark trade wars, increase costs for businesses and consumers, and slow down global economic growth.