As President Donald Trump threatens so-called “reciprocal tariffs” on US trading partners, some countries are offering lower duties to avoid the US leader’s wrath. Vietnam recently announced that it is cutting tariffs on a range of US exports, including energy and agricultural products, as well as approving the Starlink satellite internet system owned by Trump ally Elon Musk. Similarly, India appears willing to cut its tariffs on approximately half of all US imports, and Israel is removing all remaining tariffs on US goods (although the move’s practical import is less dramatic, as the vast majority of US exports were already duty-free thanks to a 1985 trade deal). 

More countries may follow. 

At least on the surface, such developments seem to vindicate Trump’s aggressive approach. Merely the risk of higher tariffs has prompted countries to offer lower duties, with attendant benefits for US exporters. It’s not difficult to see why some might claim this as an example of the president’s much-ballyhooed dealmaking prowess in action.

But let’s not put this in the win column just yet. 

Although tariff cuts on US exports are always welcome, they must be balanced against the totality of Trump’s record. That looks set to include not only tariff reductions by the likes of India (which received $41.8 billion in US exports in 2024) and Vietnam ($13.1 billion), but also retaliatory tariff increases by key trading partners such as Canada (a $349.4 billion export market in 2024) and the European Union ($370.2 billion).

That the benefits of lowered tariffs from some countries will outweigh the burden of looming retaliatory tariffs on US exporters is not clear.

Additionally, whatever tariff cuts US trading partners announce in response to Trump’s pressure could prove fleeting. The unilateral reductions announced by India and Vietnam, for example, are not secured by binding agreements. Absent such a deal, there is nothing to prevent these countries from raising their tariffs in the future.

Lastly, whatever tariffs Trump imposes as part of his reciprocal tariff policy will harm the US economy as businesses and consumers contend with higher prices. Just as trade is mutually beneficial, barriers to trade, such as tariffs, create losses on both sides of the exchange.

Between retaliation and the burden of higher tariffs, the pain caused by Trump’s approach will almost surely outweigh any (potentially short-lived) gains.

Furthermore, there’s also a significant opportunity cost here. If Trump is interested in securing a reciprocal lowering of tariffs, there’s a far better way of doing it. 

Rather than rattling his tariff saber, Trump should pursue new free trade agreements (FTAs). Through such deals, the US and its trading partners can lower (ideally, eliminate) tariffs, remove non-tariff barriers (e.g., “Buy America” rules and the Jones Act), and agree upon a common set of rules for conducting trade and more deeply integrating their economies. Such agreements—which the United States has negotiated with 20 countries—offer far greater tariff reductions than whatever the likes of India, Vietnam, or anyone else are likely to offer.

This isn’t theoretical. Under the Trans-Pacific Partnership FTA signed by the United States in 2016, Vietnam was slated to permanently reduce or eliminate the vast majority of its tariffs on US exports. Trump, however, withdrew from the deal shortly after taking office in 2017, and now the US must content itself with Vietnam cutting tariffs on a more modest range of products.

All of this assumes, of course, that President Trump is truly interested in a mutual lowering of tariffs and not merely searching for new justifications to raise US duties. Unfortunately, that seems an increasingly dubious proposition. 

President Donald Trump’s decision this week to implement a “permanent” 25 percent tariff on imported automobiles and automotive parts represents one of his most brazen—and foolish—moves yet. For the moment, we’ll leave aside that the president relied on data at least eight years old to ridiculously argue that imported cars threatened national security, that his latest move blows up his own USMCA trade agreement, and that his tariffs can’t both raise substantial revenues (which requires more imports) and boost domestic jobs and investment (which requires fewer imports) as he claims. 

Instead, we’ll focus today on just the tariffs’ economics, which—given the reality of global automotive manufacturing and reams of prior analysis—most likely portend higher prices for American consumers, chaos for the US automotive industry, and less domestic production and fewer American automotive jobs in the future.

A Globally Integrated Automotive Industry

To grasp why Trump’s tariffs will cause massive disruptions, consider how integrated the global automotive industry is today, particularly in North America, thanks to decades of open trade (zero tariffs, streamlined procedures, etc.).

Today’s industry is characterized by sophisticated and highly interconnected regional supply chains spanning multiple national borders. In the North American supply chain, the manufacturing of a component like a transmission or engine may require it to travel between the United States, Canada, and Mexico multiple times before finally being incorporated into a finished vehicle.

When tariffs are applied in such an integrated market, costs do not simply rise incrementally—they compound. A single component could therefore be subjected to multiple rounds of tariffs, resulting in exponential increases in the overall cost of manufacturing. In a previous Cato blog post, for example, we showed how a simple car seat capacitor crossed borders five times. According to Canadian manufacturer Linamar, which produces transmissions via factories in the US, Mexico, and Canada, parts cross the three borders seven times, with the transmission finally assembled in Michigan.

Even if cars and parts don’t cross borders multiple times, the tariff costs for American vehicle manufacturers will be significant because they source significant quantities from abroad. Like a “Made in China” iPhone that contains parts from all over the world, an automobile that’s “Made in America” is assembled with parts from the United States, Canada, Mexico, and elsewhere. Here, for example, is the rear suspension of a vehicle manufactured in North America:

(Source: Flavio Volpe)

As shown in the following charts, this kind of global sourcing is standard practice in today’s automotive industry. Table 1 provides an indicative list of popular US-assembled automobiles that have foreign content shares of anywhere between 30 and 91 percent. (Note that the US and Canada are so interconnected that the government’s data collectors don’t bother to separate the two countries.)

As we see in Figure 1, moreover, imported parts account for more than half of the content in what people would call an “American” vehicle (e.g., Ford and Tesla) made in the USA.

Figure 2 tells a similar story for foreign-nameplate vehicles assembled in the United States.

This does not mean, as TV personality Jim Cramer recently alleged, that US automotive production involves merely the rudimentary assembly of foreign-made engines, transmissions, and other parts. For starters, assembly itself is economically valuable. The BMW plant in Spartanburg, SC, for example, employs more than 11,000 Americans (with junior production roles today starting at $22/​hour with benefits), annually produces more than 400,000 vehicles, and was the United States’ top automotive exporter by value ($10 billion) last year.

Domestic automotive manufacturing also entails far more than assembly. In fact, NHTSA data show that the engines/​motors in 80 of 143 US-assembled models are made entirely (64) or partly (16) in America, while 82 of those same models have transmissions made here (75 in full; 7 in part).

Collectively, these data reveal the interdependent and complementary nature of US and global automotive production and trade: vehicles and parts are made here; vehicles and parts are made abroad; and both producers and consumers are better off for it.

Imports and Foreign Investment Complement the US Automotive Industry

On the production side, it is widely accepted among automotive industry experts that open trade has been a boon for US manufacturers, and that imports and exports complement domestic sales and production. As shown in Figure 3, for example, automotive imports into the United States have corresponded closely with an overall increase in US automotive production. Contra the (mistaken) White House view of trade deficits, moreover, US deficits in automotive goods have aligned with enhanced domestic output and greater production capacity.

As Lincicome detailed in December, these and other data show why industry insiders and analysts uniformly agree that open markets—not costly Reagan-era protectionism—have fueled the growth and stability of North American automotive production since the 1990s and helped American companies and workers better compete against automotive supply chains in Europe and Asia. By permanently reducing trade barriers, trade agreements like NAFTA have been credited with attracting more foreign investment and boosting overall industry competitiveness by lowering production costs (e.g., via imported inputs), utilizing national comparative advantages, and opening overseas markets. In fact, US automotive manufacturing output and employment were stronger in the 1990s and early 2000s than in the quota-ridden 1980s and stronger than US manufacturing overall during that latter period.

The industry’s need for open markets underscores why economists and industry experts today strongly oppose Trump’s new tariffs and why, as Lincicome documented weeks ago, all automakers producing here expressed similar views during the 2018–19 investigation that underpins them. Even Elon Musk noted this week that Tesla, which has substantial US production, will face a “significant” tariff cost. Burdened with such costs, as well as those from other Trump tariffs (e.g., on steel and aluminum), continued policy uncertainty, and foreign retaliation, it’ll be many US-based automotive manufacturing plants from Michigan to Georgia—and their workers—that suffer. 

Impact on American Consumers

Of course, consumers will suffer too from higher automobile prices. As Cato scholars and many others have discussed, tariffs operate as a hidden tax on American consumers—one that they pay directly on imported goods and indirectly via higher-priced domestic alternatives that face less import competition. Given the aforementioned supply chains, moreover, domestic alternatives will face higher-priced parts and equipment, adding further price pressures.

The impact on consumers will be significant. Bryan Riley of the National Taxpayers Union estimates the new tariffs could add an average of $6,500 to the price of vehicles imported from Europe, Japan, and Korea. Vehicles imported from Mexico might see price hikes averaging around $4,500. Anderson Economic Group estimates that the cost increase for cars assembled in North America would range from $4,000 to $12,000 or more. Other estimates show similar pain, which even President Trump himself has recognized, reportedly warning automakers against raising prices in response to his new tariffs.

Tariffs will also limit consumer choices. History shows that manufacturers facing new tariffs often reduce available options or eliminate certain models altogether due to higher costs and potential retaliatory tariffs from trading partners. This helps to explain why, thanks to a longstanding 25 percent US tariff on imported pickup trucks, many smaller truck models aren’t available here. And just today, Reuters reported that industry analysts expect automakers to “spread [tariffs’] cost between US-produced and imported models, cut back on features, and in some cases, stop selling affordable models aimed at first-time car buyers, as many of those are imported and less attractive if they carry a higher price tag.” 

As is so often the case with tariffs, the biggest losers will be lower- and middle-income Americans.

In one more sign of its reckless retreat from responsibility in international trade, the United States is reportedly refusing to pay its agreed share of the budget of the embattled World Trade Organization (WTO). In Geneva, US delegates have evidently told other members of the WTO that its payments for the 2024 and 2025 WTO budgets are on hold pending a review of all US contributions to international organizations.

So far, no one in Geneva is saying much about this latest insult by the Trump administration to trade multilateralism (following Trump’s previous insults and those of Joe Biden for nearly a decade). The 165 other member countries of the WTO are doing their best to pretend the United States is not acting as badly as it is in international trade governance, as they have been doing for some time now. But it is getting harder for them to pretend that all is still well with the rules-based multilateral trading system that the United States played a major role in creating but seems now to be bent on wholly abandoning.

Why would the United States refuse to pay its WTO dues?

The White House has not said.

It is not because the amount of the dues would break the US budget. Overall, the WTO has an annual budget of about $232 million. By longstanding agreement, every year this amount is allocated proportionately among the 166 WTO members according to their share of world trade in the preceding year. Accordingly, the United States is supposed to pay about 11 percent of this WTO budget—about $24 million per year.

This is probably less than US taxpayers fork over to pay for President Trump’s frequent golf trips. Those costs reportedly total tens of millions of dollars. Indeed, one report reckons that Trump’s golfing has already cost the US budget $18 million since he was sworn into his second term as president on January 20. If Trump’s team is truly looking to save Americans money by acting more efficiently, they would be better off looking in Mar-a-Lago than in Geneva. 

Nor is it because the amount of the WTO dues is unfair. If the US thinks the current system of dues allocation is unfair, it has not said so. What could be more fair than divvying up payment for the total budget according to the respective amounts of trade represented by the participating countries? The approximately $24 million in US dues is the most paid by anyone because the United States has the largest share of world trade. (China is close behind.) As the largest dues payer, the United States chairs the WTO budget committee, a role it is evidently willing to forfeit by nonpayment.

What does the United States get in exchange for these annual dues? It gets a system that has enabled American and other trade in the world to flow smoothly and fairly. This is because this system is based on agreed rules that have been backed for the past quarter of a century by the last resort of economic sanctions against trading countries that refuse to uphold them. Among other benefits, this rules-based multilateral trading system provides—in the words of the WTO treaty—“security and predictability” in world trade so that producers and traders can feel confident in sending their goods and services across international borders. And, as I explained in a 2023 essay, none of the most common populist broadsides against the organization, such as its supposed bias against US interests, are true (though it still needs reform).

Is this important to the United States? Consider another recent event. Earlier this month, the United States bombed Houthi militants in Yemen because they had been attacking oil tankers and container ships crossing the Red Sea through the Suez Canal. According to Vice President JD Vance in the infamous Signal chat that has been grabbing headlines, these attacks affected 3 percent of US trade. Apparently, he thought this did not justify the bombing; but President Trump did. In contrast to this 3 percent of US trade, the WTO affects 100 percent of US trade. About 98 percent of all world trade falls within the scope of the WTO rules that provide “security and predictability” for trade, and around 80 percent still occurs under the organization’s multilateral rules.

Of course, the Trump administration looks askance at these international trade rules, much as it does at almost everything relating to international institutions of all kinds. Beginning under Barack Obama, intensifying under Trump, continuing with Biden, and now worsening significantly under Trump now that he has returned to the presidency, the United States has betrayed its history and its ideals by becoming a scofflaw in international trade. It has weakened the international rule of law in trade by undermining the WTO dispute settlement system. It has ignored a series of WTO rulings that have rightly gone against it. And it has shown little or no interest in modernizing the trading system to make it more fit for purpose in the 21st century.

Given all this, it should come as no surprise that the Trump administration is now refusing to pay its WTO dues. 

The larger question looms: Is this but a prelude to US withdrawal from the WTO? As I’ll explain in a forthcoming paper, the United States could, under the WTO treaty, withdraw from membership in the WTO by giving the other members six months’ notice.

Sen. Josh Hawley (R‑MO) has already announced that he will be submitting a resolution soon calling for US withdrawal from the WTO. The Trump administration has not yet taken a position on this proposed resolution. If Trump endorses this effort, and if this withdrawal happens, then it would be by far the worst mistake yet by Trump—among many, many—on international trade. 

Meanwhile, the other members of the WTO are reportedly working on a “Plan B” if, following the conclusion of its current contributions review, the United States ultimately decides not to pay its dues. As part of this emerging plan, expect China to step up and offer to pay more while perhaps also assuming the chairmanship of the WTO budget committee. It is unclear how this would be in the national interest of the United States of America, in trade or otherwise.

American farmers are again facing significant losses from President Donald Trump’s quaint obsession with tariffs. Once again, American taxpayers may be forced to pay for the damage. 

In a social media post earlier this month, President Trump told “the Great Farmers of the United States” to “Have fun!” when the administration imposes more tariffs on April 2. The president of the American Soybean Association responded, “Farmers are frustrated. Tariffs are not something to take lightly and ‘have fun’ with.”

Indeed, soybean farmers were one of the biggest victims of Trump’s costly trade policies in his first term. Following retaliatory Chinese tariffs on American soybeans, exports to the soybean farmers’ largest foreign market dropped by 77 percent, according to the US Department of Agriculture. Of the $27 billion in total reduced US agriculture exports from mid-2018 to the end of 2019, soybeans represented 71 percent of the lost value.

While US soybean exports to China rebounded with a 2020 agreement between the two countries, American farmers’ share of the Chinese market has not recovered to pre-trade war levels. One reason is that Chinese importers can turn to Brazil and other countries.

With Trump back in the White House and his trade actions even more erratic and belligerent, foreign importers of US goods are seeking more dependable alternatives. Soybeans are just an example. Chinese importers are looking to South America as an alternative for chicken and pork and may turn to Australia for sorghum, barley, and wheat. It’s also not just Chinese importers. Other countries on Trump’s harassment list, including Canada and Mexico, are targeting US agricultural products for retaliatory tariffs and eyeing diversifying their sources of imports. 

At the same time, American farmers staring down reduced access to foreign markets are also facing higher production costs due to the US tariffs on imported agricultural inputs. Steel and aluminum tariffs mean higher prices for farm equipment. Canada is by far the largest supplier of potash to the US, which means higher fertilizer prices.

Farmers getting squeezed on both ends of a renewed and potentially uglier trade war likely means taxpayers will get squeezed to help cover the consequences. The first Trump administration took $23 billion from taxpayers and gave it to farmers to compensate for their losses. In her January Senate confirmation hearing, Agriculture Secretary Brooke Rollins referenced the bailout, noting, “We are prepared to execute something similar … we can’t reinvent the wheel.”

While the administration is happy to provide farmers with another bailout following another self-inflicted gunshot to the economy, it’s already started handing out taxpayer money. Last week, Rollins used National Agriculture Day to announce the administration is issuing $10 billion in direct payments to farmers authorized by Congress in December. 

This is all occurring while the Trump administration is supposedly trying to downsize the federal government. However, eliminating “waste, fraud, and abuse” in government programs while simultaneously offering multi-billion dollar bailouts—all in the pursuit of economic autarky—will accomplish no such thing.

Looking for a good example of government waste, fraud, and abuse?

The time the Trump administration is spending upending global trade is a waste, the rationale for it is a fraud, and forcing taxpayers to cover the damage is downright abuse.

Since 2016, American liquified natural gas (LNG) has been exported to at least 40 countries. One place it hasn’t been sent, however, is Puerto Rico. Shipping the fuel in bulk from the US mainland to the Caribbean island has been rendered impossible due to the Jones Act, the 1920 law that restricts domestic waterborne transportation to vessels that are built and registered in the United States.

The problem for Puerto Rico (as well as New England, and possibly Alaska and Hawaii too) is that none of the world’s more than 600 LNG tankers comply with the protectionist shipping law. As a result, LNG cannot be transported by water from US export terminals to those parts of the US that consume natural gas.

Until now.

Last week, shipping firm Crowley announced that a French-built LNG tanker it recently purchased will begin supplying American natural gas to the US territory. Named American Energy, it is allowed to operate thanks to a Jones Act loophole that permits foreign-built tankers to transport LNG to Puerto Rico (sorry, New England) provided they are American-flagged, crewed, owned, and—this is a big one—constructed before the measure was passed in October 1996. 

After years of essentially being embargoed, the island can finally access American natural gas.

It’s about time—the de facto prohibition on purchasing US LNG has long been a costly headache for Puerto Rico. In 2019, the Puerto Rico Electric Power Authority’s (PREPA) CEO told Congress that the inability to source LNG from the US mainland meant hundreds of millions of dollars in lost savings (an amount later clarified at $300 million annually). This helps explain why Puerto Rico’s government in late 2018 requested a ten-year waiver of the Jones Act (ultimately denied) for LNG shipments.

With US LNG off-limits, Puerto Rico has been forced to obtain the fuel in recent years from more distant sources such as Spain, Oman, Norway, and Nigeria. 

Although some of that may now be in the rearview mirror with attendant cost savings, Puerto Rico’s Jones Act loophole isn’t exactly an optimal solution.

For starters, the steam-powered American Energy is old (by necessity, to comply with the loophole’s provisions). Built in 1994, the vessel is one of only 13 actively trading LNG tankers globally age 30 or older. Even significantly younger LNG tankers are being sold for scrap due to their lack of competitiveness. 

For added perspective, a 2013 Government Accountability Office report highlighted PREPA officials’ concern at the time about the efficiency and safety of using sixteen-year-old tankers. And now Puerto Rico must rely on a ship that turns 31 in August.

That American Energy is US-flagged will further reduce its benefit to Puerto Rico, as such ships are over four times costlier to operate than internationally flagged vessels. 

Puerto Rico deserves to be served by efficient, modern vessels instead of a costly one that, in more normal circumstances, would be a prime candidate for scrapping.

But let’s focus on the bright side. Crowley’s LNG tanker demonstrates the gains that can be realized when Americans are provided even a partial reprieve from the Jones Act. In this case, merely exempting LNG shipments from the law’s requirement that vessels be domestically built has enabled energy to flow from the US mainland to Puerto Rico and provided employment for US mariners. 

It’s a win-win.

Congress and the Trump administration should ponder what other efficient domestic supply chains can be unlocked when onerous maritime protectionism is pared back. 

Washington’s international economic policies have increasingly turned inward over the last decade, prompting trading partners to look elsewhere for further economic integration. As the ever-erratic Trump administration threatens and implements new tariff measures on exceedingly weak grounds—even in the face of falling equities markets and increasing inflation expectations—US trading partners will increasingly reassess the value of pursuing new free trade agreements (FTAs) with the United States.

Undermining Certainty

FTAs help facilitate certainty in international commerce by establishing clear rules, eliminating tariffs, and providing neutral dispute resolution. Consumers, including firms, benefit from lower prices and expanded varieties. Likewise, predictable access to foreign markets reduces the risk for firms looking to build factories and other infrastructure, establish diversified supply chains, and hire workers. This relative certainty drives investment and enhances prosperity.

When looking for FTA partners, countries seek stable, predictable trading partners with large consumer markets. For nearly 70 years following World War II, the United States fit the bill. Policymakers leveraged the country’s outsized position in the post-war global economy to create rules and institutions that allowed international trade and investment to thrive, benefiting much of the world and the United States in particular.

Yet for nearly a decade, Washington has engaged in increasingly reckless international economic behavior. It impulsively withdrew from the Trans-Pacific Partnership (renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or “CPTPP”), a promising trade pact with Pacific Rim nations designed to establish high-quality economic rules in the Asia Pacific region while offsetting China’s gravitational pull; it levied ridiculous “national security” tariffs on steel and aluminum imports from longstanding allies; and it unilaterally crippled the World Trade Organization’s (WTO) dispute resolution system.

Such moves have not been accompanied by offsetting attempts at trade liberalization. It has been nearly 15 years since the United States negotiated and ratified an FTA.

Now the Trump administration is considering more regressive measures, threatening and imposing various tariffs on long-time close trading partners and allies for bizarre reasons.

The recent tariff threats and actions against Canada and Mexico are particularly farcical. The tariffs hit the United States’ closest neighbors and longstanding FTA partners in direct contravention of the spirit, if not the letter, of President Trump’s own US-Mexico-Canada Agreement.

The erratic and unfounded tariff announcements shatter the certainty FTAs are designed to facilitate. And the Trump administration isn’t done.

US talk of “reciprocal” tariffs on each country with which it trades is pushing trade policy uncertainty to new extreme highs (Figure 1). If Washington is willing to tear up binding trade agreements with close allies and longstanding trading partners on exceedingly weak grounds, it’s doubtful many countries will be lining up anytime soon to negotiate new FTAs with the United States. The reluctance will likely linger well after the Trump administration is gone.

Simply put, the United States is no longer a reliable trading partner.

Alternative Trading Blocs Gain Appeal and the Costs of Protectionism

In contrast to Washington’s approach of erecting fresh trade barriers, alienating allies, and turning inward, other countries are increasingly moving forward with more integration. Trade and investment blocs that exclude the United States continue to proliferate.

As of 2024, WTO numbers show more than 370 regional FTAs in force worldwide (Figure 2). As the United States puts new trade barriers in place, the rest of the world continues to pursue expanded economic integration through agreements like the CPTPP and a blockbuster 2024 trade deal between the European Union and the Southern Common Market, commonly known as Mercosur (which includes Argentina, Brazil, Paraguay, and Uruguay), as well as other regional and bilateral agreements.

These regional and bilateral FTAs are imperfect. By lowering tariffs and other trade barriers on only a relatively narrow set of countries, FTAs can divert trade from more efficient exporting countries to less efficient ones that are part of the trade agreement—a process economists call “trade diversion.” Still, these arrangements are preferable to no liberalization at all or, even worse, galloping protectionism such as in the United States.

Given these risks, FTAs should be judged on their own merits. Though often containing too much baked-in protectionism, the benefits of such agreements outweigh their downsides.

There are also longer-term costs to Washington’s retreat from trade liberalization and ignorant protectionism that must be considered.

Higher prices for American consumers are one obvious starting place. Likewise, US trade protectionism will put downward pressure on real wages since increased trade tends to promote specialization and enhance productivity. Meanwhile, American exporters face higher barriers than competitors in countries that participate in free trade deals. Higher barriers to trade will also mean a less innovative and dynamic ecosystem for existing firms, which are increasingly shielded from foreign competition.

In less concrete terms but arguably just as important, the US is incinerating a vital tool of soft power to set standards around the world in emerging areas vital to the 21st-century economy. The vacuum being created will surely be filled by others. The European Union increasingly sets heavy-handed regulatory standards that many global firms follow, a phenomenon known as the Brussels Effect. China and others will continue to fill the void as the United States retreats inward.

In short, the US is forfeiting the power and prestige it earned for cultivating today’s successful trading system while alienating close allies along the way.

Regrettably, there’s no end in sight. Ultimately, today’s boorish trade policy will likely haunt the United States long after the Trump administration exits the scene. 

When a reporter recently asked President Trump if he had a message for small business owners concerned about higher tariffs, he responded, “They’re going to be so much richer than they are right now.”

Small business owners don’t appear to share Trump’s confidence.

The administration’s basket case approach to tariffs and global trade is fueling economic uncertainty. According to the February survey from the National Federation of Independent Business (NFIB), its uncertainty index rose to its second-highest recorded reading:

A chart from the FedEx Small Business Trade Index shows that American small businesses are highly dependent on imports:

(h/​t Erica York)

Small businesses use imported goods to produce domestic goods. Tariffs increase the cost of foreign inputs and domestic substitutes. The NFIB report finds that small businesses remain concerned about inflation. Whether tariffs are technically inflationary or not, business owners will perceive them that way. 

Small businesses generally lack pricing power compared to larger firms. Larger companies are better able to absorb cost increases, while smaller firms have more difficulty passing costs onto customers and can lose sales as a result. 

The uncertainty alone is crippling, as this example from a Bloomberg article demonstrates:

The family-owned, Florida-based firm makes stainless steel tubing, valves and fittings for food manufacturers. It sources materials from a range of countries, and employs some 20 people. Sanitube has put expansion plans on hold, Adams says, because there’s no telling how much his bills will increase as a result of tariffs — and he needs to conserve cash just in case.

He’s already on the hook for the 10% China duty, and may well be exposed to two separate tariffs due to take effect early March, on metals and Canadian goods. “We are paralyzed as a company,” he says. “Until we have an idea of what tomorrow, next month or this year holds, we’re just sort of in a holding pattern.”

After Trump was elected in November, small business optimism increased as owners welcomed the end of the Biden administration’s inflationary and pro-regulatory policies. However, the FedEx survey found that 88 percent of small business owners “say that trade is key to growing and expanding the U.S. economy,” and “three-quarters say trade directly helps their business.”

The bloom may be off the rose with the small business community, and Trump only has himself (and the people he unfortunately listens to) to blame.