Do Trump’s tariffs put small businesses at greater risk? Experts weigh in

(NEW YORK) -- A carousel ride and 12 flavors of fudge await shoppers at LARK Toys, a family-owned toy shop outside Minneapolis, Minnesota.

The glee on offer belies the stress behind the counter as President Donald Trump's 145% tariffs on China, which are set to trigger price increases and product shortages within a matter of a few months, co-owner Kathy Gray told ABC News.

The store imports four out of every five of its products from China, Gray said. A flurry of orders helped amass inventory before the tariffs, Gray added, but the shop lacks the funds and storage space to build up a major stockpile.

"It's threatening," Gray said. "This administration isn't operating with the best intentions of small businesses and regular folks."

LARK Toys is hardly the only small business that said it's under strain as a result of Trump's tariff policy.

Such concern is well-founded, analysts told ABC News, since small businesses typically lack the financial buffer, supply-chain flexibility and political influence of their larger counterparts.

Small businesses make up 99.9% of all U.S. firms, and account for more than two-fifths of the nation's gross domestic product, according to the U.S. Small Business Administration.

"Many small businesses are quite vulnerable and exposed to changes in trade policy," Ebehi Iyoha, a professor of business administration at Harvard University, who co-authored the study of small business sentiment, told ABC News.

The Trump administration has touted its achievements in support of small business, citing a cooldown of inflation and robust job growth.

"President Trump has restored optimism and opportunity for our job creators with a pro-growth economic agenda that has already slashed inflation, driven job creation, and delivered record investment," Kelly Loeffler, Administrator of the Small Business Administration, said in a statement late last month.

Trump last month paused a far-reaching set of so-called "reciprocal tariffs" targeting about 75 countries. At the same time, however, Trump hiked tariffs on China. Additional levies have hit autos, steel and aluminum.

U.S. importers face an average effective tariff rate of 25.2%, the highest since 1909, the Yale Budget Lab found last month.

The rapid shift in trade policy poses an acute risk for small businesses in part because they usually lack a large rainy-day fund, Jane Liu, a professor of economics at the University of Nebraska, Omaha, told ABC News.

A typical small business holds enough cash reserves to last 27 days, a JPMorgan Chase Institute study found in 2020.

"The larger firms have a better cushion," Liu said.

Small businesses also often face more pressure to raise prices for consumers, which can put them at a disadvantage with large competitors, some analysts said.

Tariffs raise prices for consumers if importers fail to swallow the tax burden by eating into their profits or requesting that a supplier sell the product at a lower rate in order to offset a share of the cost.

Small firms typically retain less capacity to eat profits or make price requests of suppliers, putting them at greater risk of losing out on shoppers due to tariff-related price hikes, Iyoha said.

"If you have a lot of bargaining power with suppliers, you can essentially say, 'If you don't eat some of these tariff costs and lower prices, I won't buy from you,'" Iyoha said. "If you had to guess who has more bargaining power with suppliers, I'm sure you'd guess large businesses."

In some cases, the Trump administration has granted relief from some tariffs.

Last month, the White House announced an exemption from China tariffs for a range of electronic devices. Days later, Trump said he had "helped" Apple CEO Tim Cook. Trump issued a one-month delay of auto tariffs after pressure from the Big 3 U.S. automakers: Ford, General Motors and Stellantis.

Small businesses typically lack the political influence of their larger counterparts, analysts said.

"Most small businesses don't have the money or access to the best, most savvy folks able to do this," Iyoha said.

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