Small business squeeze

Tariffs and inflation have thrown a wrench in the supply chains and sourcing strategies of multinationals. But small businesses have also felt the effects.

A New York Federal Reserve Bank analysis of last year’s Fed Small Business Credit Survey (SBCS) found that small businesses were “particularly challenged by higher tariffs in 2025,” Liberty Street Economics, a blog by New York Fed economists, reported. The majority (80%) of small businesses in the goods and retail sectors passed on “at least some of the higher costs of imported inputs to customers,” the July 9 report said.

Among small businesses participants, exports may not be as big an issue. “Only about 30% of goods firms and 20% of retail firms reported sales to international customers in 2024,” according to Liberty Street. But “about 70% of goods firms and 80% of retail firms reported using at least some inputs sourced from outside the US.”

“Even though [US small businesses] are far less reliant on selling to foreign customers,” the Liberty Street analysis said, small businesses in the retail and goods sectors are susceptible “to higher costs of imported inputs from higher tariff rates.”

Squeeze play. Squeezed from both sides, metal manufacturer Ryan Industries told the US Chamber of Commerce last year that “the increase in steel and aluminum tariffs directly impacts the input costs of our business” at the same time that “domestic producers are increasing their prices.”

“It’s a simple tax increase for us that we can’t absorb. We are raising our prices also, and seeing customers delay or cancel projects,” Ryan Industries’ VP of Operations Sandra Ryan said.

While tariffs have declined in recent months, they’re still an issue. The average effective tariff rate as of May was 7.2%, according to a Penn Wharton Budget Model tracker, having declined since the Supreme Court’s ruling that struck down President Trump’s IEEPA tariffs. But some US trading partners still face higher levies; for example, China’s effective tariff rate as of May was 23.4%.

Inflation effects. New York Federal Reserve Governor Christopher Waller said on July 13 that tariffs are one of the factors “driving this upward pressure on inflation.”

In a speech, Waller said he’ll keep an eye on core inflation; the cost of core immediate goods “have increased noticeably in recent months,” he said, and other drivers of inflation include energy prices and “spillovers from demand for the AI buildout.”

“If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term. As always, we need to avoid making the mistake of fighting the last war and reacting too soon to tighten inflation, merely because we waited too long last time. But we also must avoid repeating the same mistake we made in 2021 and 2022 by waiting too long to respond,” Waller added.