There’s something unwelcome creeping into your balance sheet, and it’s not just rising rent or payroll. I’m talking about tariffs — taxes on imported goods — that are quietly reshaping costs across your supply chain.
While headlines might suggest minimal consumer price inflation so far, the impact on your business is more immediate and, in many cases, unavoidable. Tariffs increase the cost of imported goods because they add a tax at the border. Whether it’s a final product you resell, intermediate goods you assemble into finished items or raw inputs such as fertilizer, higher import costs squeeze margins. For businesses dependent on global supply chains, this isn’t theoretical. It’s a cash-flow reality.
Even if your customers haven’t felt a huge spike in prices yet, that doesn’t mean your costs haven’t already risen. Durable goods — think canned foods, packaged staples or any product with a long shelf life — may allow you to delay passing on costs temporarily. You might hold old inventory or wait for a resolution in trade negotiations before adjusting your pricing. But perishable or quickly turned-over items will reflect higher costs almost immediately.
In many cases, businesses attempt to mitigate the effect of tariffs by sourcing from alternative suppliers. But broad-based tariffs leave fewer alternatives: either pay higher production costs locally or absorb the full cost of imported inputs.
Here are some key points to keep in mind as you try to navigate the bottom line:
■ Producer price increases (PPI): The PPI is rising faster than the Consumer Price Index (3.3 percent year-over-year vs. 2.7 percent), signaling that higher costs for inputs will eventually filter through to your final goods.
■ Input costs: Items like lumber, coffee beans and other essential inputs are more expensive due to higher production costs (including tariffs), not because of surging demand.
■ “Shrinkflation” and pricing strategy: To maintain profitability, many companies are reducing product size or eliminating discounts, even if posted prices haven’t fully adjusted.
■ Interest rates: Loans for business expansion remain relatively expensive. If you raise prices to cover input costs, you’re unlikely to see significant growth in your customer base to justify expansion.
■ Supply chain flexibility: For short-shelf-life items, costs increase quickly. For durable goods, you may have more flexibility in timing price adjustments, but stockpiling or waiting for tariffs to change is only a temporary fix.
For business owners, the takeaway is clear: tariffs are no longer just a macroeconomic talking point. They’re a cost driver you need to manage actively. Supply chain flexibility, careful pricing strategy, and close attention to PPI and input costs will be crucial in navigating this new environment. Your customers may not notice the shift immediately, but your bottom line will. ●
Jonathan Ernest is Assistant professor of economics at Case Western Reserve University’s Weatherhead School of Management
