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Small businesses lack the wiggle room to absorb cost increases or shift production, and many are reevaluating plans and strategies: ‘We Are at the Limit’ say business owners.

M2S Bikes, an electric-bike startup, planned to build itself a 100-strong dealer network. Then came the Trump administration’s proposed tariffs on China. The firm, which employs five people in Asheville, N.C., imports the bikes it designs from a factory in Jinhua City, China, and says it can’t find comparable motors in the U.S. The tariffs, if they go into effect, would add $425 to the cost of its bikes. The dealership idea is now on hold while the company tries to figure out a new wholesale price that dealers will accept and that won’t kill its profit.

The U.S. has imposed 25% tariffs on $34 billion of Chinese imports, plans soon to levy similar tariffs on an additional $16 billion of goods and has announced it is considering duties on $200 billion more. China has started to respond in kind and is threatening to impose tariffs on up to $110 billion of U.S. goods if Washington moves ahead.

The impact is now rippling through the U.S. economy, and it is being felt particularly acutely by small businesses and startups. Compared with larger companies, they have less ability to deflect higher materials prices or pass along new costs to customers. Tariffs throw a wrench into pricing calculations and eat into profit margins. Smaller firms also are less able to shift production to other locations and have smaller reserves to draw on when times get tough.

Brilliant Home Technology Inc., a three-year-old Silicon Valley startup, had planned to launch its Wi-Fi-connected “smart” light switches in September at a price of $249. The threat of 10% tariffs on Chinese-made electronics forced the 30-person company, which is backed by $21 million in venture capital, to boost the price to $299.

Company co-founder Aaron Emigh said the latest proposed increase in tariffs to 25% put him in an even tougher spot and could force him to seek another round of funding. “We are at the limit of what we believe we can charge,” he said. Moving manufacturing out of China isn’t practical, he said.

Aluminum tariffs are causing Nebia Inc., a San Francisco startup with 11 employees, to consider shifting manufacturing of its $399 spalike shower heads to Mexico from Minnesota, said Philip Winter, the company’s CEO. “It puts us in a really tough place,” Mr. Winter said. The four-year-old company had already been trying to lower its costs and prices to boost sales. Now, he said the company is also looking into shifting parts away from aluminum, which accounts for 40% of its costs.

Losing Faith

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The article cited many more examples of small businesses getting clobbered by Trump's inane tariffs. As I have commented before, if Trump continues, his tactics are likely to cost Republicans the House and possibly even the Senate in November.

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Mike "Mish" Shedlock