Between tariffs and survival, American business owners are doing alarming math

Transcript:

MICHEL MARTIN, HOST:

From Wall Street to Main Street, businesses are reeling from President Trump’s expanded trade war.

LEILA FADEL, HOST:

Steep new tariffs are set to take effect at midnight on nearly everything the U.S. imports. U.S. stock markets opened sharply lower this morning, heading for a second day of steep declines. The Dow fell about 1,000 points shortly after it’s opening. Big businesses are losing market share, and small businesses feel like they’re caught in the middle of something they can’t control. Even higher taxes are due to kick in next week.

MARTIN: We’re going to talk this through with two of NPR’s business correspondents, Scott Horsley and Alina Selyukh. Welcome to you both.

ALINA SELYUKH, BYLINE: Hello, hello.

SCOTT HORSLEY, BYLINE: Good morning.

MARTIN: So, Scott, I’m going to start with you. Judging by the stock market’s reaction, a lot of investors have been really rattled by these tariffs. But, you know, Trump had been talking about this for weeks, so why are they so spooked?

HORSLEY: Yeah, this was a seismic shakeup. The Dow Jones Industrial Average tumbled more than 1,600 points yesterday, or nearly 4%. The Nasdaq dropped nearly 6%. It was the biggest one-day sell-off in the stock market since early in the pandemic. President Trump has ordered a minimum 10% tax on nearly everything the U.S. buys from other countries. He’s also ordered much higher levies on things we buy from China, Japan, the European Union. Altogether, we are looking at about a ninefold increase in tariffs now compared to what we were paying last year, and businesses are worried that it’s going to cause higher prices for them. You know, for weeks, investors have been waving the caution flag, signalling they don’t want a wider trade war. But Commerce Secretary Howard Lutnick told CNN the president’s not about to change course.

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HOWARD LUTNICK: I don’t think there’s any chance that President Trump’s going to back off his tariffs. This is the reordering of global trade.

HORSLEY: If these tariffs stick, it’s going to upend the global trading system that the U.S. has spent decades building and leave this country more isolated from the rest of the world.

MARTIN: Scott, how will these tariffs affect the economy more broadly?

HORSLEY: These tariffs are going to bring higher prices and slower economic growth. Now, we did get some encouraging news on the job market today. The labor department says employers added 228,000 jobs last month, but that’s based on a survey that was done three weeks ago, before this week’s tariff news. Remember, President Trump took over an economy that was in solid shape. Unemployment was low. GDP was growing at a respectable clip. Inflation was a little high, but it had improved significantly from a few years ago. And the president made the decision to flip over the furniture and kick up a lot of dust, so where that dust settles is going to be on him. It’s the old Pottery Barn rule – if you break it, you own the results.

MARTIN: And the president says he’s also counting on these tariffs to raise a lot of money for the government. Will they?

HORSLEY: These are high tariffs, and they could bring in a lot of money. That’s one way the administration plans to make up for the money that the government stands to lose if it extends the 2017 tax cuts. But this is not a simple matter of taking money out of one pocket and putting it in the other. Tariffs will be paid disproportionately from the pockets of working people. That’s who’s shopping at Walmart and paying higher prices for imported toys and shoes and winter produce. Meanwhile, the savings from the tax cuts will primarily flow to the pockets of the wealthy. So this is a reverse Robin Hood policy, trading taxes for tariffs. It takes money from the poor and gives it to the rich.

MARTIN: And how are other countries responding?

HORSLEY: Overnight, China slapped a 34% tariff on all U.S. imports. Other countries will also likely retaliate. That’s going to hurt farmers and factories here in the U.S. What’s more, a lot of countries that depend on exports to the U.S. will find it harder to sell their goods here, and they may be pushed towards recession. You know, Trump has ordered tariffs that are not only higher but also broader than those we’ve seen before. He’s planning to tax all kinds of goods that we do not and cannot produce at commerical scale in this country, like tropical fruit, for example. Even with global warming, I don’t think we’re going to start growing a lot of bananas in the United States. Instead, we’ll keep importing the bananas, but American consumers will have to pay more for them, and nervous shoppers have already started to dial back their spending.

MARTIN: So we’re going to turn to Alina Selyukh now. Alina, you’ve been talking to small retailers, shopkeepers and suppliers from around the country. What have you heard so far?

SELYUKH: You know, they feel like collateral damage. The evening when the tariffs were announced, I was actually at a big reception organized by the National Retail Federation. They had scheduled a fly-in for small business owners. And when the magnitude of tariffs became clear, it was, like, shell shock because it’s these companies that are on the hook to pay many of these fees. For example, Sarah Wells from Virginia shared her story. She sells purses and clothes for new moms. They’re, like, for breast pumps and breastfeeding. They’re made in China, and late last year, she made a huge shipment order. It was loading at the port when the White House raised tariffs on China by 10% in February. By the time it docked stateside, that tariff was raised again – another 10%.

SARAH WELLS: And I had to come up with $15,000 of extra cash to release my goods just this last month.

SELYUKH: And now that the total tariff on Chinese imports is up to 54%, you know, Wells is reeling.

MARTIN: What do people like her plan to do?

SELYUKH: You know, one common answer is retrenching and scaling back. Maybe your store shrinks the selection so there’s less stuff to ship. Maybe you stop hiring, stop advertising or developing new products – essentially, stop growing and go into survival mode. One retailer talked about saving a lot of money in his bank account. It’s money that he could be spending on all kinds of things – to expand, hire, market – but now he wants that money to just kind of sit on the sidelines because he expects to pay big tariffs. And then the other answer is what Scott talked about. It’s raising prices. Giant companies like Walmart are pressuring suppliers overseas to bear some of those tariff costs. Well, small retailers – they don’t have that kind of muscle. And if they pass the cost to consumers with higher prices, you know, how high can they really go before they start losing sales? Sarah Wells had a grim take.

WELLS: Even if we pass some to the consumer, we can’t pass it all. So I really think the honest answer is that businesses will close.

SELYUKH: And that’s the worst-case scenario that she thinks a lot of business owners will have to confront and will have to see.

MARTIN: You know, Alina, one of President Trump’s arguments for these tariffs is that they would bring manufacturing back to the U.S. What about these businesses? Can they find suppliers here?

SELYUKH: There was a lot of discussion about this at the event that I attended. There was actually this moment when a moderator asked a panel of small business owners, including Wells, to raise their hands if they tried to find domestic manufacturers first, and all the hands went up. But the reality is, for so many things – you know, clothes, shoes, toys, electronics – the U.S. has not manufactured them at scale in ages, or ever. And so, you know, one shopkeeper says she sells work boots. She has American-made boots. They are $400. Not everyone can afford that, so she also has imported ones that are half the price. Or I also talked to Danny Reynolds. He runs Stephenson’s clothing boutique in Indiana. It sells also wedding gowns. And he says he supports the president’s mission to level the trade playing field. He would love to have more U.S.-made gowns. They are great quality, but they’re three times as expensive. And all the big bridal gown makers – they’re overseas.

DANNY REYNOLDS: There are only so many wedding gown manufacturers in this world, especially playing in our price-range space. And as a smaller retailer, our hands are kind of tied in this regard.

SELYUKH: He says businesspeople love to negotiate their deals, make their own decisions and, you know, live and die by them. And the sweeping tariffs take that ability out of their control.

MARTIN: That is NPR business correspondents Alina Selyukh and Scott Horsley. Alina, thank you.

SELYUKH: Thank you.

MARTIN: Scott, thank you.

HORSLEY: Good to be with you.