How Tariffs and Trade Wars Impact Small Businesses—and Why Free Trade Still Matters
- Anjuli Gupta
- Apr 6
- 5 min read
Updated: Apr 10
Tariffs—taxes on imported goods—are often used to protect domestic industries, but they can create serious problems for small businesses that depend on affordable imports. This blog explores the impact of tariffs on small retailers, the challenges of trade wars, and how small business import challenges are reshaping local economies. With a focus on tariffs and small businesses, we also explain why free trade and comparative advantage matter —not just to economists, but to consumers, entrepreneurs, and communities everywhere.
What Are Tariffs and How Do They Affect Small Businesses?
A tariff is a tax that governments charge on goods imported from other countries. Tariffs can:
Make imported goods more expensive
Raise revenue for the government
Be used as tools in trade disputes
While tariffs are sometimes meant to protect local producers, they can hurt small-scale businesses that import finished goods—such as clothing, electronics, or shoes—and then resell them in local markets.
These businesses operate on tight budgets, and even a small increase in cost can impact their survival.
Why Tariffs Hurt Small Businesses More Than Large Corporations
Small businesses often lack the financial cushion, global supply chain connections, or political influence that large corporations have. When tariffs are imposed:
Their imported goods cost more
They can’t always pass costs to customers
They face shrinking profit margins
Many have limited options for alternative suppliers
Tariffs and Kenya’s Small Retailers: A Real-Life Example
Consider a small clothing shop in Nairobi, Kenya, importing readymade shoes and garments from China and India. This model works well because these goods are affordable, trendy, and cater to local demand.
But when new tariffs were introduced on imported finished goods—sometimes exceeding 35%—the store’s wholesale cost on a pair of sneakers jumped from KSh 2,000 to KSh 2,700.
The shop owner faced a tough decision:
Raise prices and risk losing customers
Absorb the cost and earn less—maybe even take a loss
According to Kenya’s Traders and Importers Association, thousands of small-scale importers are impacted by these policies, especially when local production can't meet the same demand in terms of price or quality. While tariffs aim to support domestic industries, small retailers often pay the price.
One Tariff, Many Consequences: The Ripple Effect
The impact of a tariff doesn't stop at the business that pays it. It spreads—like ripples in a pond—to others in the economy. This is known as the multiplier effect.
For example: If a small gift shop starts paying more for imported scarves, they may cut spending elsewhere—on packaging, advertising, or hiring. That, in turn, affects local printers, freelance designers, and job seekers. Slowly, the whole local economy feels the pinch.
Consider a family-run gift shop in Nairobi reduces its marketing budget due to rising import costs. Their freelance poster designer loses income. The store also cuts back on custom packaging orders, affecting a local printing vendor. They skip hiring extra staff for the holidays—costing a young graduate a seasonal job.
Trade Wars and the Problem of Uncertainty
One of the biggest hidden costs of tariffs is uncertainty. During a trade war—when countries keep raising tariffs in response to each other—small businesses are left guessing:
Will costs rise next month?
Should I change suppliers now?
Will my goods be delayed at customs?
Unlike big firms that have legal teams and backup plans, small retailers don’t have the resources to adapt quickly. This uncertainty discourages long-term planning and growth, creating an environment of fear and hesitation.
How Small Businesses Adapt to Tariffs
Tariffs may feel beyond the control of individual retailers, but there are practical steps small business owners can take to reduce the impact and adapt more effectively:
✅ Join Industry Associations
Becoming a member of industry groups like the American Apparel & Footwear Association (AAFA) or your local Chamber of Commerce can be incredibly valuable. These organizations often:
Advocate on behalf of small businesses during policy discussions
Share timely updates on changes in tariffs and trade agreements
Offer workshops or legal advice on navigating international trade
👉 Why it helps: A collective voice is more powerful than an individual one—and these groups often succeed in negotiating exemptions or relief packages during trade disputes.
✅ Diversify Supply Sources
Relying on just one country for your imports (like China or India) can be risky if tariffs are suddenly imposed. Look for alternative suppliers in countries with favorable trade agreements or consider building connections with local producers when possible.
👉 Example: A boutique that previously sourced all its scarves from China might consider exploring options in Vietnam, Bangladesh, or even local artisans who use imported fabric but manufacture domestically.
✅ Understand Tariff Codes
Sometimes the same item can fall under different tariff categories, and the one chosen can make a big difference in duties paid. Businesses can work with a customs broker or trade consultant to reclassify goods correctly and legally lower costs.
👉 Why it helps: Misclassification can lead to overpaying tariffs—or worse, fines. Many businesses save money just by filing under a more accurate product code.
✅ Go Digital
Selling online helps businesses reach more customers without increasing costs dramatically. Online platforms allow you to:
Offer your products nationally or even internationally
Reduce reliance on foot traffic and high-rent locations
Collect customer data to fine-tune your offerings
Sell directly to consumers, avoiding intermediaries and increasing your margin
👉 Example: A local shop in Nairobi that used to only sell from its stall can now sell on Instagram Shops, or its own website—reaching buyers far beyond the neighborhood.
✅ Stay Informed
International trade rules can change quickly. Stay updated on:
Government websites
Local business forums
Trade blogs or small business newsletters
Alerts from your suppliers or logistics partners
👉 Why it helps: Knowing what’s coming allows you to stock up in advance, negotiate new contracts, or switch strategies before it’s too late.
Conclusion: Why Free Trade Matters
Tariffs might protect certain industries in the short term, but they can unintentionally hurt small businesses, raise prices for consumers, and slow economic growth.
This is why free trade—the unrestricted flow of goods between countries—is so important. It allows businesses to:
Access the best quality goods at the best prices
Focus on what they do best
Serve customers more affordably and efficiently
This relates to the concept of comparative advantage, a fundamental idea in economics. It means that countries (or businesses) should produce what they are relatively better at and trade for the rest. When everyone focuses on their strengths, the whole system becomes more efficient, and everyone benefits.
Smarter policies that lower the tariff effects on local businesses and support free trade and comparative advantage can empower small retailers to thrive. By enabling them to adapt to tariffs and grow despite import challenges, we build a more inclusive and resilient economy.
Tariffs, trade wars, and policy shifts are not just headlines. They have real consequences—especially for small business owners, workers, and everyday consumers.
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