5 Ways to Limit the Damage to Your Business From Trump's Tariffs
No doubt, there is cause for concern about the effects of Trump's tariffs on the U.S. economy. Recently, the Tax Foundation created a model that revealed the tariffs planned and enacted to date would reduce long-term GDP by 0.12 percent ($30 billion) and wages by 0.08 percent, as well as eliminate over 90,000 full-time jobs.
Perhaps nowhere will the impact of the Trump's tariffs hit harder than on U.S. small businesses.
Proposed tariffs will impact everything from cash flow to retail inventory to customer loyalty as merchants struggle to absorb higher than projected prices on imported goods. So, how can small-to-medium size businesses avoid alienating customers with price hikes? Here are some basic steps that can help U.S. companies stabilize their business and keep customers:
1. Know your profit margins and budgets.
By understanding your profit margins, you may be able to assume a lesser profit and absorb more of the loss due to potential price increases rather than pass them onto customers. This allows you to stay competitive and keep hard-won customers. Look at your budgets; can you carve out some more funds to start a loyalty program where customers earn points redeemable for future discounts? If so, a loyalty program may keep them on your ecommerce site instead of shopping for cheaper prices elsewhere.
2. Cut unnecessary expenses and manage inventory.
Before you increase prices, take a look at your business expenses. Cut back on any unnecessary expenses. By eliminating those extra costs, you may save enough cash to avoid increasing prices. If you have inventory that is not selling, find ways to sell it in secondary channels or create bundles where you package deals combining non-moving inventory with the new inventory to maximize gross profit.
3. Sell refurbished goods.
If some of the proposed tariffs go through, many tech devices will skyrocket in price. It may be advantageous to augment your merchandise with refurbished items to maintain sales volume. Again, bundling refurbished items with a new item can be an attractive two-for-one deal to entice customers.
4. Prepare for tomorrow now.
As the Federal Reserve will most likely continue to raise interest rates, you may want to borrow now to offset future price increases. If you are considering expanding with a new building, it makes sense to move now before steel and aluminum tariffs raise construction costs. At the very least, locking in the financing now will help protect against the cost overruns so often associated with new construction. Similarly, it makes sense to lock in prices now on essential items rather than later as the trade war escalates.
Related: Trade Wars: Who Pays the Price?
5. Expand your product line and manufacturing base.
Although items secured from a China-based manufacturer may now carry higher prices, you may be able to source and sell similar items from North American manufacturers that are appealing to your customers. The American Manufacturers Association publishes a directory of U.S. manufacturers. There are many manufacturers from smaller countries with whom you can begin to develop relationships and eventually source items. ManufacturerSupplier.com lists manufacturers outside of China.
If you outsource manufacturing to countries in which you also sell your products, you can save on shipping and other costs. Indeed, the price of a few airline tickets should be much lower than the steep taxes the tariffs will ensure.
Although it may be impossible to completely bulletproof your business from increased prices and upheaval of the new tariffs, a little planning and a reevaluation of every step of your business will allow you better navigate the stormy trade seas.