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Tariffs aren’t just a matter for multinational corporations, they also impact small businesses and entrepreneurs. Tariffs can influence everything from your pricing to how you communicate with customers, especially if you’re selling physical goods or relying on materials and components to create what you sell.
Understanding how tariffs work, where they show up in your supply chain, and how to respond to rising costs can help you protect your business and plan ahead. Whether you sell products online, run a creative studio, or manage client-based work that depends on imported materials, this guide will outline the specific ways tariffs can affect your business, and share actionable tips for navigating cost increases, including how to talk to your customers about price changes.
What is a tariff and how does it work?
In simple terms, a tariff is a government-imposed tax on goods entering a country from abroad. It’s typically applied at the border and paid by the importer, the business or entity bringing the product into the country. For example, if there’s a 30% tariff on goods imported from China, then the business receiving those goods (you) will pay a markup of 30% and are responsible for covering the added costs with your finances.
Understanding how tariffs are applied and how those costs move through the supply chain can help you make better decisions around sourcing, pricing, accounting, and planning.
Tariffs serve several purposes from a government perspective:
Raising government revenues: Tariffs can generate income for the government by collecting fees on imported goods.
Protecting domestic industries: If it’s more expensive to import something, businesses have an incentive to produce it using domestic companies and labor.
Influencing trade relationships: Tariffs can be used as a negotiating tool and a method for responding to various policies from other countries.
There are two main types of tariffs: ad valorem and specific.
1. Ad valorem tariffs
These are calculated as a percentage of the imported item’s declared value. For example, if a 10% tariff is applied to a shipment of imported furniture valued at $5,000, the importer would pay $500 in tariff charges.
This type of tariff scales with the cost of the item, so higher-end goods carry a higher tariff, while lower-cost goods are taxed less. If you rely on premium or high-margin goods from overseas, ad valorem tariffs can significantly raise your total costs, especially when prices fluctuate due to market demand or exchange rates.
2. Specific tariffs
These are charged as a fixed amount per unit, regardless of the item’s price. For instance, a $1 tariff on each imported lightbulb means that whether you’re importing a $2 bulb or a $20 bulb, the fee is the same: $1 per unit.
Specific tariffs tend to hit low-cost, high-volume items the hardest. They can also narrow your profit margin on budget-friendly products. This can make it more challenging to stay competitive at lower price points, as you need to raise your prices to stay profitable.
Small business tariffs can shape costs in ways that aren’t always visible upfront. They’re one of many external forces that can affect your pricing and profit margins, even if your business operates entirely within the U.S. The better you understand how tariffs work, the more effectively you can prepare for and respond to changes when they arise.
How tariffs can impact small businesses
Tariffs don’t just affect importers, they influence entire industries. For a small business, even a modest change in material or vendor costs can have an outsized impact on cash flow and customer pricing. As a business owner, it’s important to understand the different ways tariffs might affect your day-to-day operations.
Increased material costs: If your products rely on imported materials like textiles, wood, metal, or packaging, tariffs can make those materials more expensive, even if you buy them from a U.S. distributor.
Vendor price hikes: Suppliers who import goods may pass their increased costs on to you. If you rely on vendors for products or components, you could see price changes that are outside of your control.
Supply chain disruptions: Tariffs can lead to delays or changes in sourcing. A material you’ve used for years might become temporarily unavailable if your supplier is adjusting to new import restrictions, shortages, or new partners.
Competitive pressure: If competitors source from domestic or tariff-free suppliers, they may be able to keep prices lower, leaving you at a disadvantage if you can’t do the same.
Budget challenges: If you’ve already set your prices or quoted a client project, sudden cost increases from tariffs can eat into your margins unexpectedly or surprise clients.
The effects of tariffs aren’t always immediate or obvious. Sometimes they show up gradually. Stay aware of these patterns and how your business could be impacted. You’ll be better prepared to spot changes early and respond strategically.
How to handle the impact of tariffs
Tariffs may be outside of your control, but your response to them isn’t. The good news: Small businesses tend to be adaptable by nature because your smaller size can give you more control over operations and make you more nimble. Below are steps you can take to reduce the impact of rising costs. The goal isn’t just to absorb price increases, it’s to make informed decisions that help you stay competitive.
Diversify your supply chain. Look for alternative suppliers, either domestically or from regions not currently impacted by tariffs. Even if prices are similar, reducing volatility can help protect your bottom line.
Negotiate where you can. Talk to your current vendors about bulk pricing or longer-term rate agreements. Remember, they may be losing customers, so negotiating could work to your advantage. They may offer discounts or workarounds to keep your business.
Adjust pricing carefully. If your costs are rising, some price increases may be necessary. Look at your product mix and raise prices incrementally where it makes the most sense. Communicate clearly and proactively to your customers why your prices are going up.
Streamline internal costs. Evaluate your business and look for places to reduce waste, consolidate shipments, or cut underperforming products. Small operational changes can offset increases elsewhere.
Explore alternative materials or products. If a key part of your offering becomes too expensive, consider redesigning your product or offering a lower-cost version. Temporary adjustments can keep things running smoothly while you explore long-term solutions.
Temporary shifts don’t have to compromise quality. When communicated well, they can also create opportunities to engage customers around flexibility, values, and transparency. Not every strategy will apply to every business, but taking a closer look at your pricing structure and vendor relationships can help you make smarter choices.
How to communicate tariff-related changes to customers
When your costs go up, it’s natural to consider raising prices. How you explain those changes to customers matters just as much as the changes themselves. Clear, respectful communication helps build trust and keeps your relationships strong, even when you’re delivering less-than-ideal news.
No matter your industry, keep these tips in mind:
Keep the tone factual and focused on quality.
Avoid alarm or blame. Stick to clear, simple explanations.
Communicate proactively when you can so customers don’t feel surprised.
Offer options or alternatives whenever possible.
Here are a few ways to approach these conversations with clarity and confidence. Adapt any messaging to your tone of voice and offer to answer questions if customers have them.
If you sell physical products:
“Due to rising supplier costs tied to import tariffs, we’ve made a small pricing adjustment. We remain committed to offering quality goods and appreciate your continued support.”
If you work on commission or by project:
“Some materials used in our work are now subject to new tariffs, which may affect overall costs. We’re happy to explore alternative options to help stay within budget.”
If you run a design, construction, or service-based business:
“A few fixtures and finishes are currently impacted by import tariffs. We’ll guide you through choices that fit your project and your price point.”
You don’t need to go into every detail. Focus on what’s changing, why it matters, and how you’re continuing to deliver quality and value. Most customers will appreciate your honesty, especially if they feel included in the conversation. With the right tone, even pricing changes can become moments that strengthen your relationships.
Tariffs may not be part of your day-to-day planning, but they can have a real impact on your costs and customer relationships. Staying informed, flexible, and transparent can help you navigate changes with confidence. Being proactive today helps you stay competitive tomorrow, no matter how trade conditions continue to change.