Tariff Fallout: Small Businesses Pay the Price for Big Business Offshoring

Tariff Fallout: Small Businesses Pay the Price for Big Business Offshoring

The recent implementation of tariffs has sparked considerable debate about their economic impact, particularly on businesses. While tariffs aim to protect domestic industries, a common misconception is that it was primarily small businesses that drove the trend of shipping production overseas in pursuit of cheap labor and larger profits. However, a closer examination reveals that the forces behind offshoring were largely driven by the strategies of multinational corporations, not the typical Main Street enterprise.

For decades, large corporations have pursued global supply chains to leverage lower labor costs in developing countries. This strategy, often driven by shareholder demands for increased profitability, allowed them to significantly reduce production expenses. As Investopedia notes, “The outsourcing of labor overseas is a natural result of the globalization of markets and of businesses’ drive to cut costs to maximize profits. If workers in countries such as India or China can do the same job for a fraction of the price that domestic labor demands, those jobs will be sent abroad.” [Source: Investopedia – look for their articles on the consequences of outsourcing]. This pursuit of “low-cost country sourcing,” as EBSCO Research Starters describes it, became a hallmark of big business, impacting industries from electronics to textiles. [Source: EBSCO Research Starters – find their overview on low-cost country sourcing].  

In contrast, small businesses typically operate with tighter margins and often prioritize local ties and community relationships. They often lack the capital and logistical infrastructure required to establish and manage complex overseas production facilities. Their focus tends to be on serving local markets and building relationships with their immediate customer base. While some small businesses might import finished goods, the decision to move their production overseas for cheaper labor was not a widespread practice. Their scale of operation and business model generally didn’t necessitate or facilitate such a move.  

Furthermore, the reasons behind offshoring for large corporations went beyond just labor costs. Access to specific raw materials, less stringent environmental regulations, and the ability to tap into growing international markets were also significant drivers. As the White House fact sheet on tariffs points out, “Large and persistent annual U.S. goods trade deficits have led to the hollowing out of our manufacturing base; resulted in a lack of incentive to increase advanced domestic manufacturing capacity; undermined critical supply chains; and rendered our defense-industrial base dependent on foreign adversaries.” [Source: The White House – refer to their statements on the rationale behind recent tariff implementations]. This highlights a broader strategic concern at the macroeconomic level, largely influenced by the decisions of major industrial players.  

The impact of tariffs on small businesses today is a different story. As Gusto reports, “When a country places a tariff on imports, it causes foreign-made products to be more expensive… the final cost of the tariff trickles down to consumers in the form of higher prices for the imported goods”. Small businesses that rely on imported components or materials now face increased costs, potentially squeezing their profit margins or forcing them to raise prices for their local customers. Similarly, retaliatory tariffs from other countries can harm small businesses that export their goods. NerdWallet explains this, stating, “When the U.S. imposes tariffs on other countries, those countries often retaliate with their own counter-tariffs on U.S. exports. This can hurt small businesses that export their products.”

Therefore, it is crucial to distinguish between the offshoring trend driven by large corporations seeking global efficiencies, cheaper labor, and illegal practices in their home country. While tariffs aim to address trade imbalances and encourage domestic production, they are impacting small businesses that were largely not the primary actors in the initial wave of production moving overseas. These local enterprises are now navigating a new economic landscape shaped by policies intended to address the actions of much larger entities.