Small Businesses Struggle with Tariffs
When an unexpected bill for around $11,000 hit, Robert Keeley found himself in a tight spot. In a somewhat desperate move, he decided to cash in 1.83 million American Express Reward Points to cover the cost.
Keeley runs a guitar pedal company with 35 employees in Oklahoma City. His situation is not unique; it reflects the struggles faced by many small and medium-sized businesses in the U.S. These companies are grappling with the unpredictable nature of U.S. trade policies. Another round of tariffs could come as soon as July 9, thanks to a deadline President Trump set for other countries to negotiate trade deals.
This situation is particularly urgent for manufacturers with fewer than 100 employees, which make up about 93% of roughly 240,000 industrial firms in the U.S. Unlike larger companies, smaller firms often lack the financial cushion or the clout to negotiate deals, making them more vulnerable to tariff hikes.
In Keeley’s circle, a few guitar pedal makers are facing similar issues. This niche market highlights the economic hardships many small businesses face due to rising tariffs.
A Difficult Decision
To stay afloat, pedal makers are having to make some atypical moves in an already competitive landscape.
Julie Robbins, the CEO of Seismic Devices in Akron, Ohio, started a supportive alliance among pedal builders. To prevent layoffs, she had to tap into her company’s credit line—though she’s concerned that won’t be enough. At times, she even contemplates relocating some production overseas—a bitter irony, given that the tariffs were intended to encourage domestic production.
While speaking at a recent NATO summit, Trump claimed that tariffs are driving companies to build factories in the U.S., though the reality seems more complicated for smaller manufacturers. They generally have less capital and flexibility to adapt, often relying heavily on imported components. For example, Keeley’s company sources essential parts from China.
In early May, nearly 50 people joined a Pedal Builder Support Group meeting, a notable increase from their initial gathering. In a light-hearted moment, a participant joked about the group sounding like a mini-OPEC. Robbins acknowledged that humor helps, especially amidst serious discussions.
During the meeting, guest speaker Shaun Fette Place, a campaign director for a small business lobbying group, pointed out that the current administration feels more economically nationalistic compared to previous ones. This shift has made navigating trade policies increasingly challenging.
Jon Cusack, who operates a pedal manufacturing business in Michigan, shared his distress over the impact of tariffs. He spent $200,000 on stock right before the tariff implementation, draining his savings. “Can we last three or six months? I might have to mortgage my house, which I really don’t want to do,” he said, reflecting the anxiety many feel.
Josh Scott, who runs a business in Kansas City and is a popular YouTube personality among guitarists, highlighted how tariffs affect consumers as well. He emphasized that businesses pass on tariff costs to customers, a fact that many may overlook.
The broader economic implications are concerning. The Federal Reserve’s chairman indicated that the effects of tariffs would soon be visible in inflation rates, and many manufacturers are already feeling the strain. Reports suggest that U.S. factory activities have contracted for the fourth consecutive month as order volumes and employment have decreased.
In mid-May, Robbins went to Washington to speak to lawmakers about the challenges small manufacturers like hers face. She argued that without intervention, many wouldn’t make it through the summer. For context, she mentioned purchasing circuit boards from China for $1.40 each, while domestic alternatives significantly exceed that cost, pushing prices up unnecessarily.
During a follow-up group meeting, she shared strategies from her company to manage costs. Meanwhile, Keeley discussed using his credit card points to cover hefty tariff costs from his suppliers.
Frustration was palpable as the group continued to interact, brainstorming ways to raise awareness about the impact of tariffs. “They think we could just start manufacturing components like resistors ourselves. They don’t grasp what that actually involves,” Cusack remarked, underscoring the gap in understanding between lawmakers and small businesses.
Robbins also noted that bridging this perception gap is crucial for gaining support. “I don’t think any of us want to go down without a fight,” she said, expressing a sentiment that resonates throughout their community.
