How Are Trump's Tariffs Affecting Small Businesses?

TL;DR

• The 10% baseline tariff took effect April 5th of 2025 and is now raising landed costs across nearly every import category.
• The US Importer of Record pays the customs duty directly to CBP — not the foreign government and not your vendor (unless they pass it down contractually)
• Tariffs are not a separate tax deduction; they must be capitalized into your inventory costs & recovered through COGS when goods are sold.

Trump's tariffs are impacting small businesses right now — not in theory, not in a future policy cycle. The 10% baseline tariff on all imports has been live since April 5th of 2025. If your operation buys physical goods — or buys from a domestic supplier who does — your cost structure has already been shifted.

Here is what this guide covers: who legally pays the tariff bill, when each rate kicked in, and how these costs interact with your inventory accounting in accordance with the tax code. 

No political commentary — pure financial impact.

What these tariffs are and when they took effect

The legal authority is IEEPA — the International Emergency Economic Powers Act. The White House used it to impose a 10% baseline tariff across all countries effective April 5th of  2025. China received separate, far steeper treatment.

On April 10th of 2025, a 125% ad valorem tariff replaced the baseline rate on Chinese imports. Country-specific reciprocal rates for other nations were paused for 90 days — that pause expired July 9, 2025. Those rates, ranging from 11% to 50% depending on origin, are now in effect.

The de minimis provision — the USD 800 threshold that previously exempted low-value postal shipments from duties — was effectively dismantled for goods originating from China and Hong Kong. The changes hit e-commerce supply chains fast.

2025–2026 Tariff Implementation Timeline

The 3 main ways tariffs impact small businesses

Higher Landed Costs — Immediately

Landed cost is the total price of a product once it reaches your warehouse: purchase price, freight, insurance, and now, customs duties. A product that cost USD 100 landed last year may cost USD 110 to USD 225 today, depending on country of origin. That gap hits gross margin directly.

Cash Flow Strain, Delays and Planning Uncertainty

You write the check to US Customs at the port of entry — before the product sells, before any revenue posts. That is a working capital drain with no immediate offset. For businesses already managing unexpected cash flow strains, this timing mismatch can become a genuine liquidity problem.

Repricing Risk and Customer Pressure

Raising prices protects margin. Absorbing costs protects customer relationships. Neither option is clean. The businesses taking the hardest hits right now are those with thin margins, fixed-price contracts, or price-sensitive customers who cannot absorb a pass-through increase.

Who pays the tariff?

Foreign governments do not pay tariffs. This is one of the most widely repeated mischaracterizations in the public debate and it is vital practically for the bottom line.

The US Importer of Record pays the customs duty directly to US Customs and Border Protection (CBP). That is typically the American business purchasing the goods. If you import directly, that entity is you.

If you buy from a US-based distributor, your vendor paid CBP — and they are pricing that cost into your next invoice. The tariff does not disappear. It just changes form.

Accounting for tariffs — COGS and IRC Section 263A

This is where many small business owners make a costly accounting error.

Tariffs are not a standalone deduction. You cannot pull the tariff amount off an invoice and expense it in the period you paid it. Under IRC Section 263A — the Uniform Capitalization (UNICAP) rules — customs duties generally must be capitalized as an acquisition cost of inventory rather than deducted as a current-period expense, unless the business qualifies for an exemption from Section 263A. This ties up cash.

The Delivery Fee Analogy

Picture buying a commercial refrigerator for your restaurant. The USD 200 delivery charge does not become a day-one expense. It gets folded into the total asset cost of the fridge — recovered over time, not on day one. Tariffs work identically. They attach to the product's cost on your balance sheet until you finally sell that product.

The Sponge Analogy

Your inventory is a sponge. Moving from an overseas factory to your warehouse, it soaks up the tariff costs paid at the border. For tax purposes, you cannot wring that water out until the sponge reaches the final customer as Cost of Goods Sold.

The practical result: your COGS rises, gross profit compresses and the timing of when you recognize the cost depends heavily on the inventory valuation method your books are currently using. This is the right moment to review your inventory accounting methods with your CPA — before a year-end surprise.

Practitioner Note: CPA firms are currently advising clients to audit their US-based vendors carefully. Many domestic suppliers are quietly passing down their own tariff-related costs — not as a line item, but folded into generic "price increases." If a domestic vendor raised prices after April 2025 without explanation, request an itemized cost breakdown. What looks like a supplier margin grab may actually be a tariff pass-through with direct implications for your own COGS calculations and 2026 tax position.

What the SBA Is doing to help small businesses

The federal response on the support side centers on the SBA's "Made in America Manufacturing Initiative". It targets domestic manufacturers facing import competition and supply chain disruption.

For FY2026, the SBA waived loan fees for small manufacturers and expanded the International Trade Loan (ITL) program to carry a 90% federal guarantee. Beginning May 1st of 2026, businesses classified under NAICS Sectors 31–33 formally become eligible. The administration has also launched a "Make Onshoring Great Again" portal to connect buyers to qualified domestic suppliers.

100% equipment expensing provisions are available under the current framework. That matters for any business investing in domestic production capacity to lower import dependence.

How to protect your profit margins today

Start with a landed cost audit. Recalculate your true per-unit cost for every imported SKU using current tariff rates. If you have not done this since April 2025, your margin assumptions are likely outdated.

Second, review supplier contracts for tariff pass-through clauses. Some agreements cover price adjustment triggers linked to customs duty changes — you may have grounds to renegotiate. Others lock you into pre-tariff pricing. Know which situation applies before the next renewal cycle.

Third, ensure tariff-related costs are tracked in your accounting records in a way that allows you to properly capitalize and allocate them under the UNICAP rules; accurate cost tracking is necessary for Section 263A compliance, even though a specific separate-line-item method is not mandated. It also gives your CPA the data needed to adjust your 2026 tax strategy before year-end — not after.

Trade policy and customs enforcement change rapidly. This guide reflects CBP and IRS guidance as of April 2026. Consult your CPA before altering inventory valuation methods.

Alexander Accountants can do the math for you

If you are staring at cost increases that do not fully add up — or wondering whether your current inventory valuation method is creating a compliance problem — this is exactly the situation where a CPA review pays for itself.

Alexander Accountants works with importers, distributors, and small manufacturers operating in the 2025–2026 tariff environment. We run landed cost analysis, audit UNICAP compliance, and help structure supplier contract reviews with the tax consequences in mind.

The pressure on your margins is real. The tax code response to it is specific. Schedule a consultation with Alexander Accountants before the next rate adjustment forces a more expensive correction.

Tariff FAQs

What is Trump doing to help small businesses?

The SBA launched the "Made in America Manufacturing Initiative," which includes an enhanced International Trade Loan program with a 90% federal guarantee for FY2026. Small manufacturers in NAICS Sectors 31–33 become eligible May 1, 2026, with zero SBA loan fees for qualifying applicants.

What business won't be affected by tariffs?

Service-based businesses — software, consulting, professional services — carry the lowest direct exposure because they deal in minimal physical goods. That said, indirect cost increases from domestic vendors and technology hardware suppliers are common, and should be factored into any 2026 budget projection. No business should assume it is fully insulated.