Small Business Strategy: 2025 Tariffs

As a small business owner, you may have met the news of Mexican, Canadian, and Chinese tariffs with an enthusiastic cheer, an enraged shout, or an exasperated sigh. Regardless of how you feel about them, Trump’s newest round of tariffs will disrupt the American economy, creating distress and opportunities in all sectors.

Compounding the uncertainty created by tariffs and signs of slowing growth, economists are warning of possible stagflation in 2025—a scenario of stagnant economic output combined with high inflation.

For small business owners, the path forward requires both defensive and opportunistic strategies. Here’s how to adapt.

1. Raise prices if tariffs hit your supply chain.

If your business imports materials or products from Mexico, Canada, or China, these tariffs will increase your costs. Taking a “wait and see” approach is easy to implement, and you may justify the strategy by assuming you can make up for lost margins with higher volume.

Do not fall into this lazy thinking. History has shown that failing to pass on price increases is an inferior path (except for loss-leaders), as your experience in 2021 may inform.

Immediate Price Adjustments Are Critical

• The longer you wait to raise prices, the harder it will be. Customers are more likely to accept price increases now, while tariffs are top-of-mind. They also prefer gradual price increases rather than a sudden, sharp hike.

• Absorbing higher costs without adjusting pricing will erode margins, put your business at risk, and give your competitors a cash flow advantage.

• Inflation is already a concern—your suppliers may raise prices again, forcing you to make multiple increases if you don’t act now.

How to Implement Price Adjustments

• Communicate openly with customers about cost pressures. Tell them you are passing on tariff costs. Transparency helps maintain trust.

• If possible, bundle price increases with added value—such as improved service, loyalty perks, or bundled products—to soften the impact.

• Watch competitors. If they raise prices, they create an opportunity to adjust yours without losing customers.

2. Seize Market Share if Your Supply Chain is Not Affected.

Not every business will be directly impacted by tariffs. If your supply chain remains stable, this is a prime opportunity to gain ground on competitors struggling with increased costs.

Tariffs Can be a Growth Opportunity

• Many competitors will be forced to raise prices. If your costs remain steady, you can offer more competitive pricing.

• Customers seeking stability may be willing to switch suppliers.

• A sluggish economy means organic growth will be harder to find—taking market share may be the only way to expand.

How to Take Advantage of Tariffs

• Market your price stability as a competitive advantage.

• Invest in targeted advertising to attract customers leaving higher-priced competitors.

• Strengthen customer relationships to increase long-term loyalty.

Example: An online Amish furniture business we work with sources materials in Indiana sees its competitors—who rely on Chinese imports—struggling with higher costs. The manufacturer has launched an ad campaign promoting “Tariff-Free Pricing” to attract new customers.

3. Plan for Stagflation

Many economists predict that the U.S. may enter a period of stagflation—a mix of slow economic growth, high inflation, and rising interest rates. If that happens, small businesses must adjust their strategies to survive and stay profitable.

Key Strategies for a Stagflation Economy

Prioritize Cash Flow

In a sluggish economy, access to capital may shrink. Ensure your business has enough liquidity to cover expenses. Reduce unnecessary spending, avoid speculative hiring, and negotiate better terms with suppliers.

Adopt a Disciplined Pricing Strategy

You need to prepare for consistently endemic inflation. Review pricing regularly and adjust in small increments rather than large, sudden jumps. Monitor inflation trends and adjust accordingly to avoid margin erosion.

Scale Back Aggressive Growth Plans

Now is not the time to make big gambles. If economic uncertainty increases, avoid overextending your business with high-risk expansion plans. You can instead use excess cash to reduce debt or build a war chest, making your business more resilient and able to seize opportunities in the future.

Focus on efficiency and optimizing existing revenue streams. This will not only improve profitability but also set you up for scale once growth returns.

Lean into Your Competitive Moats

If your business has unique advantages—such as a strong brand, a loyal customer base, or proprietary technology—lean into those strengths to maintain pricing power and market position. Every small business will face pressure in 2025 and those without solid footing will be forced out of the market.

4. Watch the Federal Reserve

What will the Fed do in stagflation: raise rates to reduce inflation or lower rates to boost economic growth?

Nobody knows what comes next for the fed, but their choice will majorly impact small businesses, which are disproportionally affected by interest rate policy.

If rates drop, consider taking more growth risks.

If rates rise, focus on cash flow and play more defense.

Final Thoughts

The combination of tariffs and a slowing economy presents challenges but also opportunities. Small businesses that act decisively—whether by adjusting pricing, capitalizing on competitor weaknesses, or preparing for stagflation—will be in a stronger position to navigate these turbulent times.

Waiting too long to adapt could mean losing profits, customers, and opportunities. The key is to plan thoughtfully so you can move quickly and strategically as the economy changes. Work closely with your managers and financial advisors to avoid drastic changes, anticipate risks, and plan contingencies.