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Small US businesses that have relied on Chinese manufacturing are in a bind as Donald Trump’s tariffs begin to bite, with few able to find US factories that will produce their wares.
As the Trump administration pushes ahead with 145 per cent levies on imports from China, there are growing worries that trade paralysis could crush small businesses that have blossomed with the aid of Chinese labour, materials and technology.
Chinese manufacturers are widely considered to be more flexible than their American counterparts, accepting smaller orders and more product customisations.
Economic uncertainty surrounding tariffs has considerably worsened the economic outlook across the country, the Federal Reserve said in its Beige Book on April 23.
Concerns about tariffs have already altered trade with China, with imports slowing to the US west coast. Scheduled vessels into Los Angeles are on track to drop 36 per cent in the week ending May 10 from the previous year, according to port statistics.
These tariff troubles are hitting entrepreneurs such as Jacob Sendowski, co-founder of Souper Cubes, which makes silicone trays for preserving home-cooked leftovers. Sendowski said his business explored manufacturing their trays in the US before they launched in 2018. Ultimately, the business chose a Chinese facility that would allow them to start with a $15,000 order, instead of the $100,000 minimums he was quoted in the US.
Sendowski said now that his tariff bill had ballooned from “five figures” to “multimillion dollars,” he once again explored US production but was told that the business would have to invest $1.5mn to custom build their own automated production line.
“If I have to go from charging $20 per tray to $30, I don’t know if people would be willing to pay $30, and I don’t want to have to do that,” Sendowski said, adding that he feared price hikes would push customers to buy Souper Cube knock-offs on Amazon instead.
Sendowski and other small business owners selling Chinese-manufactured products have flooded social media with warnings that the levies could put them out of business. Some owe hundreds of thousands of dollars in duties in order to collect their shipments at ports and complain that the state of US factories make reshoring impossible.
Business leaders warn small businesses will be the first to suffer the economic pain brought on by the tariffs, which Trump says will force the China to sign a deal combating “intellectual property theft, forced technology transfer, and other unreasonable behaviour”.
“Small businesses might be the ones that would be impacted first,” American Express chief executive Stephen Squeri said in a response to a tariffs question on a call with analysts last week. “They can be put in a situation and will not be able to compete effectively in the market.”
Chelsey Brown, founder of New York-based home goods brand Curio Blvd, decided to temporarily shutter her business and lay off her two employees next month after the tariffs made the cost of importing her keepsake boxes unsustainable. Brown said she took out a $50,000 loan to pay the levies on inventory customers pre-ordered for the Mother’s Day shopping rush, and could not afford to import other products that were already manufactured.
US factories did not have the necessary equipment to manufacture her $180 oak storage boxes, she said, adding that she was quoted a production cost of $250 per unit that would be made of lower quality wood.
“We would have to sell [the box] for $400 and it is just not possible,” Brown said. “We can’t raise our prices by 100 per cent, or we won’t have customers.”
Mike Hall, managing director at the consultancy Alvarez & Marsal, said large companies are reviewing the financial condition of their smaller suppliers, including whether tariffs would cause them cash flow problems or put them at risk of tripping bank covenants.
“This is the risk that is now just starting to rear its head in the marketplace: the suppliers that source from small mom and pop shops, the second order or tertiary supply base, are putting at risk bigger corporates,” he said.
Sendowski said he and other small business owners were frantically trying to shore up their supply chains.
“There are now existential questions about the business and how to make the unit economics work,” Sendowski said.
Additional reporting by Stephen Foley
