The ongoing trade war between the United States and China has put many of America’s small business owners on edge.
While higher tariffs will affect businesses of all sizes, they are particularly onerous to small businesses, said David French, senior vice president for government relations with the National Retail Federation.
“Small businesses are more vulnerable to a lot of the risk and uncertainty created by trade wars than are larger enterprises,” said French. “They have much less leverage in shifting product sourcing to another country, for instance, or spacing out the timing of shipments in order to avoid when the tariffs hit.”
Ultimately, that means they will have to pass along the extra costs to customers, business owners warn.
Tiffany Williams owns The Luggage Shop in Lubbock, Texas. The store has been in her family since 1951, and she’s been running it since 2005.
“We are the only luggage shop in town,” she said.
Over 85% of the products stocked in her shop – Samsonite, Tumi, Briggs & Riley – and other luggage, briefcases, and travel accessories are imported from China.
“The reality of the travel goods industry is that it is highly dependent on China,” she said.
Last fall, the US imposed an additional 10% tariff on top of existing duties, on a slew of goods coming in from China, including luggage. Then, on May 10, the government imposed more tariffs on $200 billion worth of Chinese products, including travel goods, effectively escalating the import duty on luggage and other items from 10% to 25%.
For Williams, the changing rates and uncertainty about how they will impact her costs has created confusion and anxiety for her as a business owner. “I feel like all we have been doing lately are price changes on our products,” said Williams.
She’s had to raise her retail prices by 25% to keep up with her new costs. So a $400 piece of luggage is now $500. That’s made her lose some customers.
“Consumers have not responded well. While some people are still comfortable with a $400 price point, they aren’t at $500. That’s too much of a jump,” she said.
She expects to have an even harder time selling her premium lines of luggage, which are priced higher but are also more profitable for the business.
Seeking alternatives to China
Over the last three decades, Sharon Evans, CEO of CFJ Manufacturing, has grown her business from a small jewelry store to a 120-employee promotional products company.
The business, based in Fort Worth, Texas, operates half a dozen product divisions, including clothing, bags and electronics for businesses, workplace uniforms and other branded merchandise.
Evans fears a double whammy from the tariffs because her company both sources directly from China and uses distributors who source from China.
“So in the divisions where we are most vulnerable, like our promotional goods business and clothing, our exposure to China is about 60% to 75%,” she said.
As a contingency, Evans has been vetting suppliers from other countries, such as Vietnam and the Dominican Republic. But she might also find herself having to absorb the losses that would come from the punitive duties at some point.
“CFJ’s relationship with factories in China goes back to the 1980s so we had become complacent in not researching other countries for suppliers outside of China,” said Evans. “But we are now immediately doing that process and beginning to source product outside of China for next year.”
Absorbing some of the cost
In the most recent trade war salvo, the US has threatened another round of new tariffs on an additional $300 billion of imported Chinese goods – everything from smartphones to sneakers, clothing and bedding.
For American Textile Co., based in Duquesne, Pennsylvania, that could be a devastating blow. The 94-year-old family business makes utility bedding like sheets, pillows, mattress pads and covers for brands such as Sealy and Tempur-Pedic and also for private labels. It relies heavily on Chinese suppliers.
CEO Lance Ruttenberg’s grandfather started the business in 1925. Today, the company has about 1,200 employees, operates five factories in the US and sells its products in more than 40,000 stores nationwide.
“Half of our merchandise is assembled in the US and the rest overseas, including in China, Vietnam, India and elsewhere,” he said. Still, Ruttenberg said the China tariffs will affect every product in the company’s portfolio because even the merchandise made in US factories uses components sourced from China.
“What a consumer sees in the product they buy and what it takes to get those products to a store is the result of a very complex supply chain,” said Ruttenberg. “China has heavily invested in manufacturing for our industry. The scale of it dwarfs any other alternative for us. We can’t just quickly find another option.”
It would take years for his company to try to replace China with another supplier, he said. “Until then, we have no choice but to accept the impact of these tariffs.” That could mean raising wholesale prices and losing business.
Ruttenberg hopes the company’s longstanding relationships with its customers can withstand any price increases he might have to make. “This isn’t a situation we can fix overnight from our end,” he said.
Tucker Garrison knows he has to raise prices for the Goji berries he imports from China.
His company Imlak’esh Organics, which he founded seven years ago in Santa Barbara, California, specializes in importing ethically sourced superfoods like Goji berries, Golden berries, and Sacha Inchi from small-scale organic farmers around the world.
He imports as much as 30,000 pounds of Goji berries a year from China. The company’s products are sold in 28 states, including in Whole Foods and natural products stores, and he hopes to distribute his products nationally by years end.
But now, Garrison is worried about the 25% duty the US has slapped on Goji berry imports.
“When it comes to Goji berries, China is the only game in town as the leading producer of the berries. We don’t have an alternative source for it,” said Garrison. “So when the United States is making it more expensive for us to import the berries, it also makes it more expensive for consumers to buy them.”
He expects he will have to hike the price of a 12-ounce jar of his Goji berries from $23.99 to $28.99.
“That’s almost too expensive but it’s a difficult situation now for everyone,” he said. “It’s absolutely a frustrating situation. These tariffs might even put some small businesses out of business.”