SIMBA Small Business Blog: What Tariffs Mean for Your Small Business

The news and social media have been flooded with the term tariffs. Tariffs have been talked about almost as much as the Luka Doncic trade. We wanted to make sure small businesses understood exactly how tariffs will and will not impact their businesses and their customers in Eastern Washington.

In the simplest terms, a tariff is a tax on a good or product imported from a foreign country. The tariff is paid by the importer or business owner directly importing the product. The tax is NEVER paid by the country exporting the product.

Here’s an example: 90% of all the avocados in America are imported from Mexico. So, if you are a grocery importer, and you are buying avocados from Mexico, you the grocery importer pays the tariff (tax) in full to obtain those avocados. The Mexican government and the Mexican growers or exporters selling you the avocados pay zero. So, if there’s a 10% tariff on avocados from Mexico, for example, and one pound of avocados cost $5 to purchase from Mexico, then to get your one pound of avocados as the importer, you will pay not $5 (cost of a pound of avocados), but $5.50 for the pound of avocados. Mexico pays nothing. The formula is cost of goods + (percentage of tariff x cost of goods) = amount paid to import the product.

So, if you’re a coffee shop selling avocado toast, and you are not the direct importer of the avocados (perhaps you get the avocados from URM or Spokane Produce, etc.), then the importer has paid the cost + 10%, and the importer may have then added that 10% to the cost for a wholesaler who adds on another 5% markup, and when the avocados get to you, you may be paying at least 15% more just for the avocados. That may or may not lead you to raise the cost of your avocado toast, which you then pass on to your customer. It is more likely the cost of your avocados will be 25% more by the time all the middle persons between the Mexican avocado farm and you. How much you need to raise the cost of that avocado toast for your customer will be dictated by your costs (goods + labor + overhead) to make a profit to keep your lights on at your cafe.

Some products impacted by tariffs on Mexico include produce (especially fruits and most produce in the winter), car parts, cars fully built in Mexico, tequila and beer, and appliances and appliance parts. Products impacted by tariffs on Canada include gas and crude oil, lumber and building products, whiskey and beer, paper products, meat (including beef), and steel. Products impacted by tariffs on China include plastics, clothing, computer parts and machinery, and medical supplies.

Bottom line: Any tariffs will be borne by you, the small business owner, obtaining those products. You are unlikely to pay just the percentage of the tariffs unless you are the direct importer. You can expect an increase on any of these products, and you as the small business owner will have to decide how much to raise your prices to your customers to make up for the added costs. The countries exporting the products owe nothing on tariffs, ever.

Take action: If you want to raise your voice to your federal legislatures, you can find your Representative here and your Senators here. You can email them (there’s usually a contact form on their pages) or call them. A sample script might look like: Hi, my name is [Small Business Owner]. I own a cafe in [Washington City], which is in your district. I am concerned that the propose tariff of [percent or amount] on avocados from [country] will make the cost of avocados so expensive that I either need to raise my prices, which will impact my customers that live in your district, or I have to stop selling avocado toast, which is my most popular breakfast item. This will cause my small business to lose money.