(Bloomberg) -- President Donald Trump’s sudden move to lower tariffs on goods from China to 30% from 145% has thrown a lifeline to America’s small businesses who were running low on inventory — and cash.
Their caution goes like this: tariff rates remain sky high by historical levels and will keep pressuring profits. The 90-day window for a pause while negotiations continue offers little clarity on where the levies will ultimately settle, and Trump has warned they could soar again.
The time frame doesn’t offer much help, either. While existing inventory can be shipped from China within that window, it’s not enough time to place and receive new orders for some products — let alone to line up warehousing, customs clearance and delivery. None of which is giving executives the confidence that it’s a return to business as usual.
“I thought I was going to lose an arm and a leg and today I found out I am only losing two fingers,” Turner Hydraulics owner Dan Turner said Monday after the agreement was reached.
Turner is wary of placing new orders for his company, which sells equipment used by the Metropolitan Opera in New York City and The Colosseum at Caesars Palace and typically needs four months from order to delivery.
But he’s taking the win where he can. Just a few days ago, he was contemplating drawing down on a credit line to pay over $80,000 in tariffs on a shipment due to arrive from China in the coming weeks. Now he can now handle the bill of $30,000 without help from the bank. “So I am happy about it,” he said of the latest US-China agreement.
Trump’s sudden turnabout came as a chorus of small businesses warned that soaring tariffs were burning up their cash flow. The more than 30 million small businesses in the US are estimated to account for half of the nation’s private-sector workforce, and their sentiment lately has been decidedly weak. A sector-wide gauge of optimism deteriorated for a fourth straight month in April.
Data from the American Bankruptcy Institute showed an April uptick in a type of bankruptcy filing typically used by small businesses, which it said “signals persistent distress.” At the same time, slumping import volumes at the Port of Los Angeles — the nation’s busiest — had warned of a brewing supply shock.
“Small businesses that import from China will still take a beating,” said Heidi Crebo-Rediker, a senior fellow at the Council on Foreign Relations and a former State Department official. “This is still a huge nightmare to navigate,” she said.
The hopeful case is that the agreement will pave the way for a broader trade deal between the world’s two biggest economies.
“President Trump’s pro-growth, America First economic agenda is geared towards giving small business owners and entrepreneurs more confidence to manufacture in the United States — and tariffs are just one key part of this agenda,” White House spokesman Kush Desai said in a statement.
For some companies, the pact offers enough time to restart production and start shipping. Importers have also built a cushion by rushing to get inventory in ahead of the widespread tariffs that Trump announced in April, leaving them well placed for now.
But even with the reprieve, analysis by Bloomberg Economics shows average US tariffs on China are still around 40%. Estimates by the Yale Budget Lab shows consumers face an overall average effective tariff rate of 17.8%, the highest since 1934.
That’s why Joann Cartiglia — whose company, The Queen’s Treasures, designs high end, hand-crafted dolls and toys that are made in China — says the reduction will do little to stem her cash burn. She’s reluctant to place new orders out of fear that the tariff rate may yet push higher and is labeling best sellers on her website as out of stock.
“I cannot bring in any of my beautiful furniture items, or my large items. I can’t even bring in the dolls,” she said. “It is just too risky.”
Industry groups remain cautious too. The US Chamber of Commerce warned that even after the tariff move, small businesses in particular face growing costs and disruptions. And remaining tariffs will still make for an expensive back-to-school and holiday season this year, according to the American Apparel & Footwear Association.
“Under normal circumstances, the remaining tariff levels would be considered borderline crisis-level, rather than a positive breakthrough,” said Stephen Olson, a former US trade negotiator now with the Singapore based ISEAS-Yusof Ishak Institute, said. “Moreover, the systemic trade frictions between the US and China will not be resolved within 90 days.”
It isn’t just tariffs on imports from China that are pressuring small businesses. At Colorado-based Mountain Racing Products, the company faces 25% duties on aluminum and steel and 10% tariffs on products from Taiwan, boosting costs to design and make components for high-end mountain bikes.
That’s denting demand both at home and abroad and is forcing Chief Executive Officer Tim Fry to lay off staff, cut managers’ pay, trim expenses and take out a precautionary line of credit.
“We have only let go five people in the history of the company tied to changing economic times, and three of those have happened in the past few months,” Fry said. “It is definitely one of the most challenging times I have seen in this business in the last 30 years.”
--With assistance from Steven Church and Mark Niquette.
