How Small Businesses are affected By New Tariff System?
Before explaining the impact of Trump’s tariff to SMEs, let us clarify first what does the word “Tariff” means. Tariff is a form of tax on a certain class of exports or imports like soybeans, lumber and any other commodities that come in and out of the country. These tariffs are divided into two categories, the Unit and Ad Valorem tariff.
- Unit Tariff – this is a fixed dollar amount for specific item like steel.
- Ad Valorem Tariff – it’s directly proportional to the amount of items imported from suppliers abroad.
Historically, the goal is to increase revenue of the country and at the same time, protect the companies in their sovereign from foreign competitors. Effects of tariff are going to vary but they have a tendency of raising the cost of imported goods while also boosting markets for domestic businesses.
With the implementation of new tariff system, it will be a whole new adjustment for companies, most especially for small and midsized businesses.
How SMEs can Navigate with the Changing Market?
Despite the fact that tariffs are intended to protect local companies and organizations, it is inevitable to create indirect consequences to them and to the economy as a whole. Even something as focused as import tax on industrial metals could cause ripple effect that can negatively hit businesses in other industries such as electrician Gilbert AZ. Being an entrepreneur, it’s crucial to skillfully manage your business and cleverly think of solutions to quickly adapt to the changing market landscape.
It’s a Chain Reaction
“When the elephants dance, everybody gets shaken up”
This is a quote from Lyneir Richardson who is an Executive Director of Center for Urban Entrepreneurship and Economic Development at Rutgers Business School.
In business analogy, negotiating with suppliers that are asking for higher demands couldn’t be passed immediately to customers. This creates more time to think about the pricing, renegotiation and manage cash flow.
One example of unintended consequences that small businesses take is in form of electrician Gilbert AZ. So let’s say that the contractor buys raw materials and supplies such as wires, breakers, lugs, drivers etc. on a regular basis. While their industry is far from businesses operating in aluminum or steel, their products do play a role to their smooth operations. There’s a high possibility that companies manufacturing drivers and lugs have to adjust to their pricing to cover for new costs or else, lay off employees. Thus, increasing their price alongside the rate of electricians to cover for the new cost.