Tariffs can impact small business but there is nothing you can do to avoid it. You will therefore need to know the ways in which you can deal with these tariffs. Looking at the latest duel between the US and China regarding the raise in tariff of Chinese imports has not only signaled a retaliation from China but has also impacted the business world on the whole. It is sure that further developments are bound to occur in this regard.
Amid this turmoil, businesses have started following the latest news, analyze the current and upcoming situation and speculate the impact it will have on the financial market, the large industries and the entire business sector.
- The experts believe that the spate in tariffs will soon start international trade wars.
- They also believe that it has a large scope to make macroeconomic implications.
- Most surprisingly and alarmingly, they also believe that it will affect the small businesses significantly.
It is primarily due to the lack of coverage that the small businesses will be left wondering what these tariffs are and what the meaning of it for their business is. Well, here is a brief insight.
About the Tariff:
If you are wondering what the tariff is actually and who is going to pay it, first know about the tariffs.Tariffs are actually duties or taxes that are imposed on a specific class of exports or imports of any product. There are a few different types of these taxes or tariffs.
- A unit tariff: This is a fixed dollar amount that a business has to pay as taxes on a particular item, for example steel.
- An ad valorem tariff: This is actually a proportioned value of the goods imported. These tariffs are the most common and instead of a fixed dollar amount these are expressed as a percentage of the import value.
Whether it is a unit tariff or an ad valorem tariff, these taxes are typically paid by the buyer of the imported goods. However, there can be a private arrangement between the buyer and seller wherein the seller pays the tariff.
The Purpose of It:
Historically, the primary purpose of imposing such duties and taxes on import and expert of goods is twofold:
- One, to increase national revenue and
- Two, to protect the companies of the country from being weakened by foreign competition.
By dis-incentivizing the buying of cheaper products the country maintains the quality of goods as well as satisfaction people receive by using these goods. The effects of these tariffs on business may also vary but one thing is for sure: it raises the cost of an imported good both or the businesses as well as the consumers.
There is one significant positive effect of such tariffs as well which is it helps in boosting the domestic companies that seems to be affected by such imported goods.
Economic Value of the Small Business:
With the inclusion of these taxes on imported goods, the small businesses should know how to manage them in this changing market. Quite naturally, international tariffs are considered to be seismic events that results in massive consequences especially impacting the small businesses in ways that they hardly could anticipate.
In the US it is found that:
- Small businesses accounts for 99.7% of employer companies
- 48% of private workforce.
This means that small businesses are ideally the backbone of a country’s economic condition. This is because they affect the collective well-being of the business sector and creates a huge effect on the economy in different terms such as:
- In the field of employment
- The wages of the employees and
- The overall growth of the industry.
In other words, the economic value of the small businesses is highly significant.
Managing the Market:
Though unintended, these tariffs have an indirect effect throughout the economy they target as well as all the consumers living in that particular region or economy. Even the seeming focused tariff on steel and aluminum may also have a ripple effect. This is because it will impact the businesses in all other industries making it difficult for the entrepreneurs to manage their company deftly as and when the market changes.
Small businesses often have to face the wrath of such changes especially those that have to deal with the supply chain.
- They have to askfor higher costs but this cost cannot be passed on to the consumers quickly enough to reduce the impact.
- They also have to devote more time in thinking about their pricing policy of the product and even have to renegotiate a few terms in order to manage a steady cash flow.
Typically, most of the small businesses operate on a razorthin margin and these tariffs consume a major portion of their meager profit. It is for this reason they will have to renegotiate their standing agreements.
Things to Keep in Mind:
Running a small business is not an easy task given today’s competitive business scenario where a lot of strategic planning is required to move ahead, face and overcome the challenges and competition, make the best use of the social media and get free Instagram likes to boost up the marketing efforts and results and much more.
In such a situation and according to the experts there are a few things that every small business should keep in mind so that they can adjust themselves to these new tariffs:
- Stay attuned to their profit margin and to know the costs that has to be absorbed and those that must be covered
- Reduce a few expenses to offset the tariff related hikes
- Renegotiate for a favorable deal in spite of the price increase
- Find the areas where the cost can be balanced before raising the prices
- Do everything in terms of market average and
- Consider customer value very highly.
Ideally, the biggest issue for all small businesses is managing their cash flow and any kind of tax or tariff regulation will add a cost and slow the business. The best way to avoid such impact is to stockpile some essential goods before prices rise.