Newport, Oregon. Photo: Jeffrey St. Clair.
In the world of business, economic certainty is a key, not the only one, to profitability. In contrast, economic certainty aids profitability. Thus, President Trump’s on-and-off-again tariffs, or taxes, on imports of foreign goods from the rest of the world’s nations can harm the profitability of businesses of all sizes.
However, size matters. To wit, the bigger the amount of capital a business holds, e.g., large corporations, the less risk there is from economic uncertainty. Accordingly, bigger businesses with the most capital can weather the storm of economic uncertainty versus small firms that lack such a cushion. Small businesses can lose money, e.g., handle cash flow slowdowns briefly, before closing their doors.
The monopoly corporations at the top of the business world can, do and will use their large holdings of capital to survive rising costs of imported goods via increased tariffs and then pass some or none of these higher prices on to buyers, consumers and other businesses. Therefore, when President Trump tells Walmart, Inc., the global retail giant, to eat the cost of tariffs, his statement conceals more than it reveals.
Spoiler alert: who is eating and being eaten is the issue in the business world. That is, small businesses, his stated beneficiaries of the tariffs, can’t eat the cost of these taxes on foreign imports. In other words, what the president failed to say about the impacts of his tariffs on America’s small businesses sidesteps a big part of the story.
The rising costs of imported goods for businesses dovetail with the impacts of proposed non-military federal spending cuts. The latter sucks money out of the consumer economy. Consumption accounts for two-thirds of the U.S. economy. That is a big deal. It raises the risk of economic contraction, or a recession. The devil is in the details of this one-two punch combo, trade and fiscal policy, for small businesses. To help us understand what is at stake and why, we turn to Carolina Martinez, CEO of small business advocacy group CAMEO Network.
Her comments on how tariffs and economic uncertainty are harming America’s small businesses focus in part on the added impacts of proposed federal spending cuts under the president’s budget bill that has passed the House and is in the Senate now. One example is a potential zeroing out of funding for the Community Development Institutions (CDFI, operated by the U.S. Treasury Department). This source of funding is crucial to connecting small business owners in low- and moderate-income communities to affordable capital—loans with reasonable interest rates. The following is a lightly edited email interview with her.
Seth Sandronsky: What is President Trump’s problem with the CDFI Fund?
Carolina Martinez: The CDFI Fund has already been targeted in an executive order. In this directive, he claimed that the CDFI Fund was an “unnecessary” part of the federal bureaucracy.
SS: Where do things stand with federal spending for the U.S. Small Business Association (SBA) and related agencies?
CM: Likely spending cuts loom for the SBA, which provides access to affordable loans, disaster relief, and business coaching; the agency’s capacity has already been affected by staff cuts. There are also likely spending cuts to the U.S. Department of Agriculture’s small business programs, such as the Rural Business Development Grants and the Rural Microentrepreneur Assistance Program.
SS: How do Trump’s tariffs connect with small businesses amid federal spending reductions?
CM: With tariffs increasing prices and creating cash flow challenges, many small businesses are desperate for financing. At the same time, traditional banks are pulling back on small business lending. This combination opens the door to opportunity for predatory lenders, who hide exorbitant interest rates and fees behind promises of fast cash. Already, we are seeing for-profit lenders marketing their products as “tariff relief” financing. Small businesses should make sure they completely understand how any finance offer may affect their bottom line before it forces them to close.
Community development financial institutions (CDFIs) help mitigate this risk by providing an affordable, trustworthy, community-based financing option for small business owners who may not be able to access bank loans. Unfortunately, federal funding for CDFIs is at risk, which could prevent them from meeting capacity. Even without federal cuts, only 40% of CDFIs report being able to fully meet demand.
SS: What is a likely scenario for small businesses under a defunded CDFI?
CM: If CDFIs don’t have the resources to adequately serve small businesses facing tariff-related cost increases, business owners may turn to higher-cost alternatives that create long-term financial challenges. We’ve seen these lenders charge rates over 300% annual percentage rate. Protecting CDFI funding is crucial to ensuring entrepreneurs have access to responsible financing options rather than being forced toward predatory lending when cash flow is tight due to increased cost of goods.
SS: What remedy is CAMEO demanding?
CM: In addition to supporting funding for CDFIs, state and federal lawmakers need to support transparency in lending so that lenders clearly disclose annual percentage rates and fees. Just like with a mortgage, small business owners should be able to clearly compare the costs of their options.
SS: Thanks for your time.
