(This column originally appeared in The Guardian)
Earlier this month the Trump administration moved forward with eliminating a loophole that allowed businesses to avoid tariffs if making purchases under $800. Some experts say that the “de minimis” exemption will hit “many, many” small businesses hard.
“The de minimis suspension ending is yet another change that has forced every American small business owner to become an accidental trade policy expert overnight,” Jacob Bennett, CEO and co-founder of small business banking platform Crux Analytics, told Forbes. “There’s this whiplash effect that many, many small business owners are now feeling which is leading to growing uncertainty and concern about how they’re going to continue running their business.”
Let’s not panic.
Trump’s tariff adventures have been a major pain in the neck for any business that buys products — directly or indirectly — that originate from overseas. And I agree that this latest development is going to hurt some small businesses. In a nation of more than 33m small businesses, any regulation is going to affect some of them. But it actually only affects a tiny portion of small businesses.
The vast majority of these 33m businesses — about 70% of them — are service providers — accountants, contractors, freelancers, etc — who don’t buy international goods. And take a look around your neighborhood. Who are the small businesses there? Restaurants, coffee shops, grocery stores, fitness centers, gas stations, pizza parlors. These are not people who will see any difference in their lives because of this particular change.
This panic over the expiration of the de minimis exemption — and tariffs in general — is misdirected. Yes, prices are going to rise. But as long as people can afford such items they’ll keep buying. That’s what we need to worry about.
The latest jobs report suggests that the long boom in the labor market is coming to an end. For now workers are — at least for the most part — keeping up. Current inflation is running at about 2.7% annually, so most working people are still making more than what they have to spend. Net worth held by the 50th to 90th wealth percentiles (the middle class) remains at historical highs. Both the bond and stock markets remain strong.
This doesn’t mean we do nothing in the face of tariffs. My smartest clients are diversifying away from higher-priced foreign goods, finding alternate suppliers, targeting their price increases better and offering financing solutions like Buy Now Pay Later to make it easier for their customers to pay. Others are buying in bulk and storing in bonded warehouses where they pay no tariffs while they wait out the uncertain environment.
Yes, Trump’s tariffs are creating uncertainty, headaches and angst. Yes, these tariffs are going to result in increased prices. But as long as income and wealth grow as they have, the economy will probably absorb this. That’s what we need to keep an eye on.
