The Tarrif War and Your Smallbiz

What should small businesses do in the era of Tarrif wars.

Let’s start out by answering the question: What are tariffs?

Simply put, tariffs are taxes on foreign imports.  Tariffs are typically very specific taxes on very specific imports and are often targeted to hurt imports or exports from specific countries and specific industries.

Tarrifs are usually imposed to protect a domestic industry.  The reasoning could be for national security purposes or to give a particular domestic industry the opportunity to grow by keeping the competition at bay.

For example, country A could impose a 20% tax on automobiles coming from country B, because country A want it’s automobile industry to grow without stiff competition from an overseas competitor.

Every country imposes Tarrifs.  Some more much more than others.

While Tarrifs can help certain businesses it can also be bad for the consumer and consequently bad for business. 

High Tarrifs can drive up the price of a product to domestic customers.  If a product manufactured overseas can be imported and sold at a lower price than a domestically produce product that benefits the consumer, but harms the local business.  Imposing a Tarrif on that product will increase the price of the product to the consumer but protects the local business.

Overseas manufacturers are often able to sell their products at a lower price because they do not cover their cost of production.  When overseas manufacturers don’t cover the cost of production in their pricing that’s cheating (otherwise called dumping).  Sometimes tarrifs are imposed to compensate for the fact that some manufacturers cheat.

If you are in any industry that buys goods that at some point cross an international border, you are impacted by trade laws and tariffs.

The tarrifs imposed by President Donald Trump have many entrepreneurs trying to figure out what to do.  The president imposed over 50 billion dollars in tarrifs (25% on Steel and 10% on Aluminum) on products as steel and aluminium.  Other tarrifs in the amount of 100 billion dollars are under consideration for other products.

The president is using these tarrifs as a way to address trade imbalances that existed for over 40 years with countries such as China, Mexico, Japan, Canada and other European countries.

The aim is to get those countries to stop their unfair practices which will give American businesses better access to their markets and a chance to sell their products at competitive prices.

Most take for granted that there are virtually no barriers to foreign companies operating in the American economy.  But for American companies to operate in many overseas markets they have to deal with high tarrifs, technology transfer, theft of intellectual property, partnering with a domestic partner, etc.

Top export destinations for U.S. small business include Canada, Mexico, China, Japan and the United Kingdom.

So what to do?  Hold tight.  Most of the announced tarrifs have not been implemented yet.  Some have been suspended.  The affected nations are re-negotiating trade deals with the administration to address the issues above.  Also, it’s not a bad idea to start looking for other markets to expand to.

Sources:
Presidential Proclamation on Adjusting Imports of Steel into the United States
Presidential Proclamation on Adjusting Imports of Aluminum into the United States

By Wendy Stewart