Tariff Policies Raising Expenses for Small Businesses

The cost of doing business is becoming particularly expensive for many small business owners who don’t have the volume of business that can help overcome margin challenges caused by increased expenses from tariffs.

Some entrepreneurs have been forced to raise their prices to reflect their additional expenses, causing a trickle-down effect that impacts consumers.

A majority of the women’s clothing and accessories carried by Detroit-based retailer The Peacock Room are made overseas, so the impact of tariffs on Rachel Lutz’s business has been significant.

Even with that, The Peacock Room’s items are made of higher quality than many imported clothing products, a fact Lutz has confirmed from overseas trips to visit suppliers in China and elsewhere. She’s also visited multiple factories to inspect quality of products shipped from Canada.

Tariffs are unfortunately impacting the costs of most imported goods to the U.S. within her industry, Lutz said. Even with an emphasis on quality control and taking active and creative steps to find savings in the sourcing products, costs are up significantly.

“I feel safe saying we put more into sourcing than most suppliers, but it hasn’t helped (with prices) much in this environment,” Lutz said.

One of the reasons that planning is so difficult is that tariff policy changes rapidly, often weekly. Lutz has a spreadsheet of all her vendors, their locations and the current tariff rate. Those rates change, though, sometimes without notice. Her spreadsheet quickly becomes outdated.

Michael Howard III, owner of family owned Howard Family Designs in Warren, said the chaos around U.S. tariff policy is causing “significant economic uncertainty.”

“That makes it tough to plan,” Lutz said. “I typically order months ahead so we’re just having to stay as flexible as possible because we have been surprised by (unexpected tariff) fees that we hadn’t planned for.”

For example, Lutz recently ordered $500 worth of purses from one of her regular suppliers in Spain. By the time the order was filled, Lutz was notified that the cost of tariffs would amount to $600, more than the cost of the good alone. The supplier in Spain offered to pick up that cost, but suppliers have had to adjust their prices to deal with the tariff hit, making the prices higher for The Peacock Room. The scenario is not a stand-alone one.

Much of Lutz’s time these days is spent negotiating with suppliers. Those wholesalers are trying to absorb as many costs as they can, and Lutz is attempting to cover the rest while still finding profit margins.

“The end consumer doesn’t see or know about this need for negotiation that small businesses in my industry and others go through,” Lutz said. “Some of them aren’t feeling (that pain) yet.”

Michael Howard III agrees that the changing nature of tariffs is having as adverse of an effect as anything. He is the owner of Warren, Mich.-based Howard Family Designs, which makes wood-based furniture for consumers. Like Lutz, Howard has placed orders for wood that were revealed to have unknown tariff fees, making it hard to plan accordingly.

“The economic uncertainty is a big part of the issue,” Howard said. “If there’s a stable method of (tariffs) then I can plan better but right now it’s chaos. In my opinion, it’s causing significant economic uncertainty.”

The price of wood has nearly doubled in some cases over the last few months because of tariffs, Howard said. Most types of wood aren’t or even can’t be processed in the U.S. because of a lack of infrastructure, or a lack of raw materials based on climate. The lack of infrastructure includes lower numbers of lumber mills that would make it difficult to ramp up wood production demand anytime in the near future. Howard estimates it could take well over a year for such infrastructure to be created.

While cherry, maple, red oak and black walnut are types of wood that are available in the U.S., those styles make up a small percentage of market options. Mahogony, for example, is only grown in Latin American countries located in Central and South America. Many soft wood options are only available from Canada.


Rachel Lutz, recognized earlier this year as a top Women in Leadership honoree, said shifting tariff rates “make it hard to plan.”

“When you have higher prices with these types of (imported) wood, it raises the prices of all wood,” Howard said. “We can’t not absorb some of those costs, but we can’t (absorb) all of it either.”

Howard has seen wholesale wood prices rise by 25 percent or more for some varieties this year. That impacts his profit margin and revenues, as some consumers interested in custom wood furniture products have recently decided to wait until prices fall.

Among the expenses Howard has cut back on is supporting local causes and charitable efforts through sponsorship and other options on behalf of his family’s furniture company. Such higher costs can also impact Howard’s ability to fill open positions, adding more stress on current employees.

“All of this is impacting not just us but customers because prices are higher,” he said.

Many companies have indicated a willingness to absorb some of the costs of tariffs, but even Fortune 500 retailers like Walmart are passing along some of the price increases to customers.

The Washington Post reported in May that Walmart’s CFO, John David Rainey, and CEO Doug McMillon said in a May 2025 earnings call that the tariffs implemented by the Trump administration are putting upward pressure on costs, especially for goods imported from China and other countries.

While Rainey said in the May 2025 article that the global retailer is trying to absorb some of the costs, it “cannot absorb all the pressure,” with such products as electronics, toys, apparel and “general merchandise” that are heavily reliant on imports specifically impacted.

Hiring has also slowed based on national data. U.S. job growth weakened in August, according to the U.S. Labor Department’s Bureau of Labor Statistics. Numbers released in early September indicated that the unemployment rate rose to nearly a four-year high of 4.3 percent.

That data was referenced by U.S. Federal Reserve Chairman Jerome Powell and other Fed governors as a reason it instituted a 0.25 percent cut in the federal funds rate — what banks charge each other for short-term loans — to between 4 percent and 4.25 percent on September 17. Those employment figures would in theory support two additional cuts before the end of 2025, Powell said in his comments that day.

However, U.S. filings for unemployment benefits for the week ending September 13 fell by 33,000 to 231,000, the Labor Department reported in mid-September. That number of filings was lower than expected by most market analysts, signifying that while hiring has slowed, layoffs appear to be stabilized.

Recent unemployment insurance data show some decrease in new claims, but current insured claims unemployment remain elevated, according to the Labor Department. This remains consistent with the belief of some economists that labor market softness may continue in the near-term.

Many large retailers and distributors have indicated that tariffs will cause their expenses to rise, which in turn will be passed on to consumers. Because of tariffs on inputs like steel and aluminum (used in packaging), Brands, a global packaged goods company, expect the cost of goods sold to increase by roughly 3 percent, which means hundreds of millions more in costs. Stanley Black and Decker expects about an $800 million annualized impact from increased tariff-related costs.

American Airlines, Chipotle, IBM, PepsiCo and other companies have indicated in earnings reports that tariffs are increasing input or supply chain costs, complicating their ability to predict expenses or maintain margins.

Tariffs appear to be injecting risk into the equation for defense manufacturers, said Valde Garcia, the president of the Michigan Chapter of the National Defense Industrial Association (NDIA). It has caused the prices of raw materials in particular to fluctuate making it difficult to plan accordingly.

The reality is that this isn’t a new phenomenon for defense manufacturers, Garcia said, because geopolitical events often play a role in shifting the marketplace, and companies’ expenses. The difference here is that the chaos is being generated based on “controllable” policy.

Retail sectors aren’t the only ones experiencing higher expenses. Manufacturers continue to deal with the impact of tariffs as well, and the resulting short-term challenges, Garcia said. Garcia, who confirmed his comments are reflective of his own experience and what he has heard from professionals working in the defense industry, used copper and aluminum as two examples of industry challenges.

Both raw materials are only widely available from South America, but high tariffs have forced some manufacturers to change their strategy, perhaps reducing the amount of copper and aluminum in certain products.

Adjustments are necessary to address higher costs, which can include a push for more sales, entry into new markets, and a reduction in investments. The concern is that this can adversely impact growth as these increases are passed down to customers. Either way, margins can also be adversely affected.
“I’ve heard that some companies are putting investments on hold which isn’t ideal,” Garcia said. “The uncertainty in commodity availability is a big part of it.

“Some companies are having to purchase goods that they normally get outside of the U.S. to other countries or domestically, based on the tariff impact,” Garcia said.

Michigan Manufacturing Association (MMA) President John Walsh said earlier this summer that most of the association’s members continue to put both hiring decisions and major investment expenditures on hold because of the uncertainty around the impact of higher expenses because of tariffs. That is particularly challenging in an industry with tight margins and supply chain variability which is being exacerbated by tariffs.

“There are higher expenses (members) don’t even think about that have to be accounted for,” Walsh said.

Michigan Manufacturing Association President John Walsh said uncertainty around higher expenses has association members putting off investment expenditures.

According to a Sept. 8 report from BBC, more than 70 percent of manufacturers questioned by the Dallas branch of the Federal Reserve indicated that tariffs had cause an adverse impact on their business. In some cases, small manufacturers indicated that such an impact raised expenses and damaged profitability.

The tariff impact has also forced some defense manufacturers to pull out of bids for long-term, governmental projects with long lead periods and potentially smaller margins. They may decide that they can’t guarantee the end deliverable can be provided as outlined in the proposal because of logistical uncertainties or that the project is not worth the time and money required for up-front bidding. As some companies have frozen or reduced hiring given cost constraints, they might not be able to complete the project with their current workforce.

Finding qualified candidates for many manufacturing jobs remains difficult, but the need to preserve capital has slowed hiring for some companies, Garcia said.
“Unfortunately, this could limit innovation,” Garcia said. “I’m speculating here but (tariff policy) could prevent future growth that not only hurts the (manufacturer) but the government agencies and the economy as a whole.”

There are potential positive impacts as well. One is that the tariff crunch is forcing some companies to redesign their operations and find creative strategies to become more profitable, although many dealt with such challenges during the COVID pandemic.

“It’s forcing them to sharpen the pencil and shift to new products or find new avenues for raw materials,” Garcia said.

The other potential benefit is a reshoring of some of the raw materials and manufacturing operations to the U.S., which has been a stated goal of the Trump Administration. Garcia said some manufacturers are looking for ways to partner with other foreign-owned firms to set up operations in the U.S., given the zero-tariff impact on goods made domestically.

“These measures could eventually help members although we don’t know to what extent,” Garcia said.

The financial crunch is disproportionately being felt by brick-and-mortar retailers, especially small business owners, Lutz said. While margins are often higher, the volume of business is nowhere near what it is for large businesses and retail chain, so any impact on a handful of sales is pronounced. That makes it hard to make any decisions on spending money, including on staff if needed.

“It’s forced us to work harder on every order that comes in,” Lutz said. “We all pay for these tariffs but retail in particular has had such a fragile recovery after the (Great Recession and Covid) that’s it hard to see where to go from here.”

Howard said the rising cost of wood is reminiscent of the early days of the Covid pandemic when prices skyrocketed because of global supply chain challenges caused by various workplace shutdowns to help limit the spread of the virus. The reality though is that wood prices fell little, if at all from those Covid prices and have since risen further from tariffs, Howard said. The falling value of the U.S. Dollar compared to some global currencies this year hasn’t helped either, Howard said.

“Even though prices went up because of Covid and now because of tariffs it impacts our business and this industry in (similar ways),” Howard said. “It has a wide-reaching effect.”

By Eric Maes