Many small businesses rely on imported goods, but related tariffs can add up to a significant expense. A tariff is a tax that applies to foreign imports. It’s meant to limit foreign goods and in turn, protect domestic jobs and reduce competition among U.S. industries. It also provides revenue for the U.S. government.
While large corporations may be able to convince foreign sellers to cover a portion of their tariffs, small business owners usually have less bargaining power — and many are forced to pass these costs onto their customers. Current tariffs increase consumer costs by about $51 billion annually, based on 2021 import levels.
This leaves lots of small business owners in a tough spot. According to the National Retail Federation, many are concerned about increased operating costs and the impact tariffs have on their ability to grow. That’s why we’ve rounded up three ways small businesses can find some relief.
3 Ways to Save on Imported Goods
1. Consider Switching to New International Suppliers
When paired with inflation, tariffs can have a double-whammy effect on small businesses. It’s little wonder that nearly a quarter of businesses surveyed in April 2022 said they planned to identify new supply chain options. Every business is different when it comes to imported goods. Begin by taking a fresh look at your business’s foreign imports. How much, on average, are you currently spending to bring these items into the country?
It’s important to remember that different products from different countries are all taxed in different ways. Some countries have very high rates, while others are much lower. Doing your research and working with a new country might help you secure lower tariffs (and potentially cheaper shipping costs if that country is closer to your homebase).
On that note, the U.S. currently has free trade agreements (FTAs) with 20 different countries. That means goods imported from these countries should have little or no tariffs. Working with an FTA partner has other benefits. According to the U.S. Department of Commerce, these agreements typically allow for fewer trade barriers and create a more predictable and transparent trading environment.
2. Look for Goods That Are Exempt From Taxes
The specific goods you need to run your business will be unique to you. With that said, certain products are exempt from tariffs. At the time of this writing, 352 Chinese exports are on the list. That includes consumer goods like vacuum cleaners, bicycles, backpacks, certain car parts, electric motors and more. Reviewing that list may help you find import substitutions that could improve your small business’s bottom line.
Countries like India, China, Vietnam and Thailand are among the cheapest when it comes to manufacturing. However, the supply chain shortages of the last few years have created a huge headache for many small business owners. Shifting to U.S.-based manufacturing might be the solution for some.
3. Research Locally Made Goods
For many small business owners, the initial draw of foreign imports is that they’re often cheaper than products manufactured in the United States — but this isn’t always true when you consider the bigger picture. National sales and local taxes are usually tacked onto imported goods. That’s on top of tariffs. Customs fees may also apply. Again, these rates all depend on the country and product. (This database allows you to look up tariffs and local taxes for more than 170 different countries.)
After accounting for all these costs, going with domestic products might save you money in the long run. Shopify also points to these other benefits of working with domestic suppliers:
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Manufacturing and labor standards are likely higher.
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No language barrier means easier communication.
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You can show your customers that you’re investing in American-made products.
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You can expect faster shipping.
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You’ll likely have greater payment security.
According to the U.S. Department of Commerce, tariffs were listed as one of the top five reasons why manufacturers want to move away from offshoring. Meanwhile, 70% of firms surveyed in 2020 said they were likely to reshore — or switch to local manufacturing — in the coming years.
If going with a domestic supplier just isn’t an option for your business, partnering with a country that has a free trade agreement with the U.S. may be your next best option.
Other Ways to Reduce Business Expenses
In the end, some small businesses may not be able to avoid high tariffs. Finding other ways to bring down business expenses can help offset these costs. That may include:
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Putting big projects and growth initiatives on hold for a bit
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Rethinking your marketing efforts to attract new customers
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Reviewing your expenses and looking for areas of waste
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Investing in do-it-yourself payroll and accounting software
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Renegotiating your rent and utility bills
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Shopping around for new vendors you use outside of foreign imports
Small business owners are usually juggling a lot. Finding ways to relieve the burden of tariffs can make things a little easier. The National Association for the Self-Employed is dedicated to providing information and resources to help business owners every step of the way.