How tariffs and war are hurting small businesses in California

from Levi SumagasaiCalMatters

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Small businesses, already dealing with the costs and chaos of tariffs, must now also contend with the fallout from the Iran war.

“It feels like things just keep piling up,” said Nicole McDonald, owner of a San Diego business that sells handbags. “Not only for the business, but also for the consumers. And what is a business without consumers?”

Because her customers are in financial pain just like her, they spend less money on discretionary items, she said. If they still buy, they choose denim bags over leather because they are cheaper.

“Every level of pressure, economic uncertainty and purse-stringency affects people’s spending decisions,” Belt bag owner said.

Other small retailers in the area tell similar stories of increased costs and having to adapt to continued rate uncertainty as a result of Decision of the Supreme Court which invalidated most of President Donald Trump’s sweeping tariffs. In some cases, such as if they imported their own goods, they may be able to apply for a tariff refund, although the timetable for receiving a refund is unclear. The president also imposed new tariffs based on a different law that California and other states oppose filed a lawsuit.

Meanwhile, everyone was hit by higher delivery costs because fuel prices rose. The average price for regular unleaded gas in the state is $5.55, up from $4.79 a year ago, according to AAA. The national average was $4.11 versus $3.15 a year ago. The spikes in gas prices caused inflation to rise in March. Consumer confidence is at a record low.

Higher prices are hitting small businesses – defined as those with fewer than 500 employees – harder than large ones, and some are wondering how long they can survive. That’s bad news for the state, whose small businesses create millions of new jobs annually and have recently been responsible for 99 percent of net new jobs, according to California Office of the Small Business Advocate.

Lost sales, staff, etc

McDonald’s, whose business brings in six figures a month, said its sales in 2025 were down by up to 50% compared to the previous year. Because of the tariffs, it stopped making products in China and moved entirely to India. It went from 11 employees to three. And because she’s spent tens of thousands of dollars on fares, she said she doesn’t have the money to bring in inventory for the holidays.

She uses brokers to import her bids, so she’s waiting to hear from them about a possible rate refund. But even if she ends up getting a refund, she said the damage is done: “That money could have gone to staff or to growth instead of going to tax.”

The president’s policies have a global impact. Last week, MacDonald’s long-time manufacturing partner in India informed her that raw material costs had risen by 25%, so that would mean higher costs for new production. After raising prices by about 10% last year, it will likely have to raise them again because it operates on thin margins, she said.

The top executive of the Port of Long Beach, one of the nation’s largest ports, recently spoke about higher costs being passed on to small businesses and consumers.

“For a while, shippers absorbed the rising costs from the fuel spike to last year’s Liberation Day rates,” Noel Hasegaba, CEO of the Port of Long Beach, said during a media briefing earlier this month. “That’s no longer the case. Today, those costs are being passed on everywhere. We’re seeing new surcharges and higher rates.”

He said the big shippers are introduction of fuel surchargesand adjusting the way they move the load. Amazon adds a 3.5% Third Party Seller Surcharge for fuel and logistics. The US Postal Service plans a temporary 8% surcharge, and UPS and FedEx have also raised their surcharges.

Hacegaba was joined by Jonathan Gold, vice president of the National Retail Federation, who said the country’s small retailers are seeing a disproportionate impact. “Small businesses in particular don’t have the ability to absorb the cost increases and usually have to pass them on to the end user,” Gold said.

“We can only charge so much”

But small retailers don’t want to drive away their loyal customers.

Rema Abedkader is feeling the strain everywhere, with the latest pain point being higher shipping costs, but she’s hesitant to pass the cost on to her shoppers. The womenswear designer said she didn’t want to raise prices because it would only deter those who were still spending.

“We can only charge so much, so we have to eat that price again,” she said.

Abedkader who makes her eponymous clothing brand REMA in the San Diego area, but buys imported fabrics from Los Angeles-based companies, said it had to cut production by about 30 percent last year, which meant fewer sales. This year, it had to cut production by about 50%.

Her reduced business has had a widespread impact on her local ecosystem, all of whom are small business owners.

“When I’m not producing, there’s no work for my sewer, pattern maker and saw,” she said. This leads to a vicious cycle: “My producer had to find a second job, so our business had to be put on the back burner.”

Abedkader said he works four times as hard and has to get creative in marketing and wholesaling locally.

“If the government doesn’t do something about small businesses, a lot of us will be out of business very soon,” she said.

Like Abedkader, womenswear designer and manufacturer Jennifer Grace Carter knows fabric brokers and importers in the Los Angeles area who have closed due to tariff costs.

The Trump administration’s immigration policies have also affected her business. Carter, who uses imported materials but makes her clothes at home, said many people are afraid to come to work. One workshop where 25 people sew now sees less than half of them come to work, she said, adding that the workers are “here legally but they look a certain way” so they are scared.

Her handiwork Mark Jennifer Grace had to cut back on styles to accommodate this change, she said.

The bottom line is that Carter is dealing with “less labor, (less) materials and higher costs,” she said. She has only raised her prices gradually because people won’t buy if the business changes prices too drastically, she said.

Carter recently returned to California from direct-to-consumer events in Las Vegas and Scottsdale, Arizona. The war between the US and Israel in Iran not only affected its transportation costs, but also increased its travel costs. Her clients were in the same boat. She heard some attendees talk about how “it was so expensive to get here … I wanted to shop more.”

Long-term impact of higher costs

The pain of higher costs seems unlikely to go away anytime soon. On the one hand, uncertainty persists.

“Whether it’s offshore around the world or right here at home with chaotic politics, it makes it difficult for business people to plan,” said Gene Serocca, executive director of the Port of Los Angeles, during a media briefing this month.

Even those whose businesses stand a chance of benefiting from what’s happening are pessimistic.

“It’s going to be harder and harder for small businesses,” said Eli Rose, owner of Calibaja Manufacturing, which contracts with American firms to make their products in Mexico. These firms avoid import tariffs because most products made in Mexico are still governed by the United States-Mexico-Canada Agreement—although the free trade deal is being renegotiated.

Rose said the small business owners she spoke with are seeing increasing challenges. It takes much longer than before to get their products to the United States, she said — 100 to 165 days per ship versus the 30 to 60 days it used to take.

“It’s components, finished goods, whatever you need, coming from Asia,” she said. “It will slow everything down and cost more.”

And if or when fuel prices come down, she doubts businesses will cut their prices because they’ve had to absorb increased costs over the past few years. That will affect innovation, Rose said: “In the end, it’s going to be a bigger problem for everybody.”

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.