If you have been paying attention to the news, you’re probably well aware of the new 25% tariffs imposed by President Trump. According to news reports, the tariffs on Canadian goods crossing into the U.S. set for February 4th have been delayed for at least a month. These new tariffs promise 25% on most imported U.S. goods, including 10% on oil and gas. As you can imagine, this will impact prices for consumers and businesses. In retaliation, Canada is expected to issue retaliatory tariffs on some Canadian resources imported into the U.S.
When you own a small business, government trade decisions can majorly impact your business directly and indirectly. However, you can still grow your business once these new tariffs are implemented. Let’s take a look at what we know so far.
What are tariffs?
To fully understand how small businesses will be affected by these changes, we must first determine what tariffs are. These are taxes a governmental authority places on a specific type of imported or exported product. Governments will set tariffs on anything from raw materials, finished products, or in some cases, both! For example, you may see tariffs on raw materials, such as aluminum. This can be used to manufacture anything from a car to a can of pop. As a result, you may see tariffs on automobiles and canned pop, two products that contain aluminum.
What different types of tariffs are there?
There are two basic types of tariffs:
- Ad Valorem Tariffs: These are taxes that will change based on the value of imported goods and/or materials.
- Unit Tariffs: These are taxes that are charged in a specific dollar amount set for several different products.
So, why do governments tax goods? Well, it is to protect their nation’s companies from foreign competitors. Additionally, tariffs increase revenue within the nation. When a government imposes a tariff, it will cost more to import the goods. So, if you’re selling imported goods to a customer, you will most likely need to raise the price of the product you are selling.
What imported goods will be affected?
The tariffs will target a large variety of goods, most being everyday items. These include food and drink, auto parts, clothing and footwear, cosmetics, home wars, furniture and appliances, motorcycles, tobacco, lumber, paper and more. These items are targeted since both are expected to have a key impact on key U.S. stakeholders. The cost can be minimized as there are domestically-made alternatives. CTV News released a list of how deeply Canada is targeting certain products with tariffs. This is based on import figures stated by a senior official:
- Cosmetics and body care: $3.5 billion
- Appliances and other household items: $3.4 billion
- Pulp and paper products: $3 billion
- Tires: $2 billion
- Plastic products: $1.8 billion
- Precious gems and metals: $1.7 billion
- Furniture $1.6 billion
- Wood products: $875 million
- Coffee: $714 million
- Grains: $600 million
- Wine grape, spirits and other products: $589 million
- Cocoa products: $569 million
- Tools and cutlery: $560 million
- Dairy: $555 million
- Sugar and sugar-containing products: $542 million
- Sauces and dressings $517 million; and
- Fruits: $512 million
How will U.S. tariffs affect small businesses?
So, how will these new U.S. tariffs affect your small business? That depends on what type of business you have. For example, if you have a restaurant business that uses a lot of aluminum pans for delivering, serving and selling food. On top of this, imports, such as alcohol, pop, cooking ingredients, etc. will also have applicable tariffs. This may require some extra homework on your part when it comes to budgeting, or considering supporting local.
When the cost to create materials increases, this will likely raise prices in order to keep up with the inflation. This means that your overall cost will also get higher. Will your customers remain if you raise your prices to cover the increased costs? Though many may continue supporting your business, it is important to take note of some steps you can take before raising the prices of your products or services. Let’s look at some proactive measures you can take to prepare.
What can I do to prepare for supply chain issues?
There are many proactive steps to take before any tariffs are implemented. Some examples include:
- Cut costs in other parts of your budget.
- Negotiate new or current contracts with any suppliers you may have.
- Look for suppliers that sell products produced in Canada.
- Stock up on goods and materials before prices get higher.
- Explore new ways to bring in income to offset higher supply costs.
- Review inventory to make sure you aren’t carrying more than is necessary.
Even if you don’t believe any new tariffs will affect you or your business, these are great measures to take to save you and your business money.
Though nothing is set in stone, being prepared for any changes when it comes to tariffs is crucial. It is also very important to make sure you are stocked up on proper insurance for your business. The new year is the perfect time to review your business insurance policy. If you have any questions or would like to reach out, don’t hesitate to contact us at isure or request a quote today!
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