This blog post is authored by the NLC Entrepreneurship & Economic Development Team
In the wake of new economic policies and developments, anxieties can ebb and flow, especially among those who work extensively with local economies, such as city leaders and elected officials. Small businesses and local communities are responding to and preparing for impacts from tariffs in various ways. This article details what tariffs are, as well as their impacts to small businesses, and includes perspectives from city and entrepreneurship leaders.
What are Tariffs?
Tariffs are essentially taxes levied on imported products — or even materials used to assemble or build a completed product. This fee goes to the federal government as part of its revenue.
Tariffs and Small Businesses
Small businesses are often the bedrock of culture, tourism and even economic development in cities. These businesses may operate differently from big corporations, which extends to their options and behavior in the face of tariffs of imported goods. More than 99% of businesses in the U.S. are classified as small businesses (firms with 500 employees or fewer), according to the U.S. Chamber of Commerce. Depending upon the type of product(s) they sell, all businesses — but especially many small businesses — don’t have as many options in the face of drastically rising costs from tariffs. They can either completely halt business if it’s with a highly tariffed country, and then look to local options for potential substitutes, or they can raise prices, passing on some or all of that increase to the consumer, thereby potentially losing business due to higher prices.
Though research consistently shows that general tariffs bring more costs than benefits overall, the effect isn’t uniform across the economy, and there may be opportunities that some local communities will be able to take advantage of.
Sometimes tariffs can provide an opportunity for local, domestic businesses to have the “first pass” at the local market, rather than competing with international companies that may have sold items at a lower rate without tariffs in place. The Richmond Federal Reserve Bank found that, of firms interviewed, 30% planned to diversify supply chains — in the case of supply chains with resources existing in the U.S., this could mean more local suppliers and companies are sought out for domestic production. Between the disruptions experienced at the start of the COVID-19 pandemic and the more recent tariffs on imports, some estimates point to U.S. businesses placing a higher value on “reshoring” (bringing manufacturing back to the U.S. where excess capacity still exists) as part of their strategy to improve supply chain resilience.
Local Voices: How Cities Have Been Impacted by Tariffs
NLC’s Entrepreneurship and Economic Development team interviewed local leaders who work with small businesses and with city governments to see how they are bracing for tariffs and/or supporting small businesses in their communities amidst these broad economic policies. Each leader has worked with their city (or a city/county and surrounding municipalities) on entrepreneurship support and engagement, and all of them are entrepreneurs themselves as well. They were each implementation leads in previous years of the City Inclusive Entrepreneurship Program that supported local economic development departments and entrepreneurial ecosystems. All spoke in a personal capacity as business owners and not on behalf of any city government. This article includes their answers to the following questions, in some cases without specific attribution to preserve municipal anonymity.
- Jennifer Anderson, City of Montgomery, AL (consultant for the city and advisor to various small businesses locally)
- Chrissanne Long, City of Lakeland, FL (owner of Maximize Digital and works directly with local government and other small businesses)
- Brandy Guidry, City of Houston, TX (senior planner of economic development for the Houston-Galveston Council, which serves more than 100 cities and 20 counties and owner of Four Generations)
How are Your City’s Economic Development Leaders and Partners Potentially Preparing for the Impact of Tariffs (If They Are)?
- “Our role as economic development leaders is to help entrepreneurs prepare for both the challenges — like tariffs — and the opportunities ahead. Whether facing headwinds or harvest, sustainability starts with foresight and support. At the end of the day, good business is a result of good preparation.”
- “Our city is waiting for things to land. We are not immediately preparing for the impact because there is a lot of fear regarding what is going on and what is to come with regard to the local economy and small businesses, too.”
- “Our area is exploring bringing back domestic manufacturing and what that might mean. Looking at supply chain logistics locally, we have concerns because there’s so much dependence on imports and other countries. The amount of support needed as far as aligning to anything we’ll need to do domestically will be very difficult for us to catch up to what already exists internationally.”
How are Your City’s Small Businesses Being Impacted by Tariffs Now/How Do They Anticipate They Will Be Impacted By Them?
- Anderson: “People do business with people. Tariffs are quietly squeezing the small businesses that power our Main Streets. Many are doing the right thing by ordering in bulk to stay ahead, but they’re now facing delays, supply chain issues, and rising prices on imports they can’t avoid. For the neighborhood bakeshop, ingredients like cocoa and vanilla aren’t grown here; they have no local substitute. Beauty supply stores are importing wigs and tools that simply aren’t made in the U.S. These aren’t luxury imports: they’re business essentials. Even packaging — like jars, boxes and labels — is affected and these added costs quietly chip away at their margins. From cupcakes to conditioner, tariffs are influencing what businesses can offer, how much they charge, and whether their doors stay open.”
- Long: “What I’ve seen as someone who works with local governments and who owns a small business specializing in marketing and communications support for other small businesses is that small businesses are not paying for services like marketing. With increased prices and the economic anxiety being caused by not knowing the full impact of tariffs, businesses are holding on to whatever capital they can keep in coffers for as long as they can to wait out the storm, if you will.”
- Guidry: “In our area, small business customers are asking if suppliers can help offset their costs. We are already aware of some layoffs because of upfront costs that need to be available. There is heavy dependence on China in multiple industries, which also has led to a decent amount of disruption, even when it comes to technologies that might have cost less with existing domestic manufacturing and production facilities; for those heavily focused on importing, we’re hearing chatter about changing schedules, new procurement processes that will now need to be heavily focused domestically … What we’ve seen across multiple cities the last few months is an uptick in traditional loans and lending where people need to look at other types of financing that they didn’t think they needed because now their scope is a little broader, or even just to have some extra funds.”
How Might Cities Better Support Small Businesses and Their Entrepreneurial Ecosystems?
- Anderson: “Cities can better support small businesses by breaking down complex topics — like tariffs or shifting economic policies — into bite-sized, accessible learning moments. We call it “microdosing the learning” because entrepreneurs are managing families, teams, inventory, and customers, all while trying to stay informed. Sitting through a full training session isn’t always realistic. We have to be intentional — think 3 p.m. coffee chats for bakery owners who close at 2 p.m., or 7 a.m. ‘Cereal Conversations’ for business owners who open at 9 a.m. Meeting people where they are isn’t just convenient, it’s necessary. When cities rethink how, when and where they deliver information, they help small business owners stay connected, compliant and competitive — without adding to their overwhelm.”
- Guidry: “We are leaning into that list that we have right now of local businesses and we can help those people apply for RFPs and other requests for quotes, and from other government entities …People are looking at existing networks, such as the Houston Port Authority because it has one of the biggest ports. Even just for regular goods, groceries, avocados for examples are talked about a lot since we’re in Texas, there’s so much imported — looking at export/import banking, leverage your existing Economic Development Administration relationships; even at the federal level, the EDA has said that is where we can support with regard to uncertainty. The focus is on localized opportunities for supply chain logistics and manufacturing, it’s not so much what we’re focusing on, it’s at what level.”
Get Connected
National League of Cities can be a resource for cities seeking to learn more about how to engage and support their small business communities amid economic change. Join NLC’s Inclusive Entrepreneurship and Economic Development LinkedIn group to connect with other city leaders managing similar challenges and efforts to support local economies.
How Cities Can Spark Economic Transformation through Entrepreneur-Led Economic Development
- Tomeka Lee
Economic Mobility: How Cities Can Support Entrepreneurs Earning Less Than 100K
- Rosanna Mulcahy
- Safaya Fawzi
Catalyzing Change: Building a Sustainable Economic Ecosystem
- Tomeka Lee
From the Event – City Summit Perspectives on a New Downtown
- Samantha Pedrosa
Legacy Reborn: Reenergizing a Historically Black Shopping District
- Tomeka Lee
Embracing Experience: Two Sides of the Coin Demystifying Small Business Ownership
- Tomeka Lee