The Impact of Tariffs and Trade Policies on Michigan Small Businesses

In today’s interconnected global economy, small businesses in Michigan are increasingly affected by international trade policies and tariffs. These government-imposed measures influence the flow of goods and services between countries, impacting the costs, competitiveness, and overall operations of small businesses.

For companies that rely on imported materials, tariffs can create unexpected price increases, forcing business owners to either absorb higher costs or pass them on to consumers. Trade policies, such as revised agreements or retaliatory tariffs, can also alter supply chains, disrupt long-term contracts, and even reduce access to international markets.

Understanding how tariffs work, how trade policies are implemented, and what small businesses can do to adapt is crucial for Michigan’s economic landscape. This guide provides insight into these issues while offering strategies to mitigate risks and capitalize on new opportunities.

How Tariffs Work and When They Are Imposed

A tariff is a tax that a government places on imported goods, typically paid by the importing business to its home country's customs agency. The goal is to influence trade by making foreign products more expensive, thereby encouraging the purchase of domestically produced goods.

Tariffs come in different forms. Some are calculated as a percentage of the value of the goods, known as ad valorem tariffs. Others are fixed amounts per unit, called specific tariffs. In some cases, governments use compound tariffs, which combine both methods.

Governments impose tariffs for a variety of reasons. Some are designed to protect domestic industries, shielding them from foreign competition by making imported goods more expensive. Others are used as a form of retaliation in response to trade disputes. Tariffs can also serve as revenue generators for governments, though this has become a less common justification in modern trade policy.

The timing and reasoning behind new tariffs are often politically driven, but small businesses are the ones that feel the most immediate effects. When tariffs are introduced suddenly, businesses have little time to adjust pricing, renegotiate supplier contracts, or find alternative sourcing options.

Recent Developments in U.S. Tariff Policies

In early 2025, the U.S. government announced a series of new tariffs affecting imports from major trading partners, including Canada, Mexico, and China. These tariffs included a 25% increase on certain Canadian and Mexican imports and a 10% increase on Chinese goods. Additionally, Canadian energy resources faced a 10% tariff, creating potential challenges for Michigan businesses that rely on cross-border energy trade. Although these tariffs have been paused by the federal government, their possible impact on foreign trade remains.

These policy changes were intended to pressure foreign governments to take action on issues related to immigration control and illicit drug trafficking. However, the economic consequences extended far beyond the political motivations, affecting manufacturing costs, retail pricing, and agricultural exports.

Michigan, with its deep ties to the automotive, agriculture, and manufacturing sectors, is particularly vulnerable to such trade disruptions. Many small businesses that depend on imported raw materials and components are now facing higher costs, forcing them to evaluate alternative supply chain options.

How Tariffs and Trade Policies Impact Michigan Small Businesses

Tariffs have far-reaching effects on small businesses, particularly in manufacturing, retail, and agriculture. Businesses that rely on imported materials face immediate cost increases, leading to difficult decisions about pricing and profitability.

For example, a Michigan-based manufacturer that imports aluminum from Canada to produce car parts might see its costs rise due to tariffs. If the price of aluminum increases by 25%, the company must either absorb the higher cost, raise its prices, or find a new supplier. Raising prices may make the business less competitive while absorbing costs could reduce profit margins.

Trade policies also introduce supply chain disruptions. If a supplier in China suddenly faces new export restrictions or increased tariffs, a Michigan business might struggle to obtain the necessary components. The time and effort required to establish new supplier relationships can lead to production delays and increased operating expenses.

Uncertainty is another major challenge. Businesses thrive on stability, allowing them to plan inventory, production, and pricing strategies in advance. When trade policies shift rapidly, small business owners are forced into reactive decision-making, which can lead to short-term financial strain and long-term instability.

Retaliatory tariffs are another issue. When the U.S. imposes tariffs, other countries often respond by placing tariffs on American-made goods. Michigan businesses that export products may find their goods suddenly subject to higher taxes in foreign markets, reducing demand and profitability.

Michigan-Specific Considerations in Trade Policy

While trade policy is determined at the federal level, Michigan businesses have access to state-specific resources designed to support companies affected by tariffs and shifting trade dynamics.

The Michigan Economic Development Corporation (MEDC) offers export assistance programs, market research services, and trade missions to help businesses expand internationally. For companies struggling with new trade barriers, MEDC can provide guidance on alternative markets and financing options.

The Michigan Department of Agriculture and Rural Development (MDARD) plays a vital role in assisting agricultural businesses affected by changing trade policies. Michigan’s farmers, who export products like cherries, apples, and dairy, are particularly vulnerable to retaliatory tariffs. MDARD helps connect local farmers with new international buyers and provides grants to offset some trade-related losses.

Additionally, the Michigan Manufacturing Technology Center (MMTC) assists businesses in optimizing their supply chains, improving efficiency, and navigating compliance issues related to international trade.

A Case Study: Importing a Widget for a Michigan Manufacturer

To illustrate how tariffs affect small businesses, consider the case of a Michigan-based manufacturing company that produces industrial equipment. The company imports a specialized widget from a supplier in China, which costs $10 per unit.

With the new 10% tariff imposed on Chinese goods, the cost of the widget rises to $11 per unit. If the company purchases 10,000 widgets annually, this represents an additional expense of $10,000 per year.

The company now faces several choices:

Absorb the cost, reducing overall profits.
Pass the cost to customers, increasing prices and potentially losing sales.
Find a new supplier in a country not subject to tariffs, which may involve additional costs related to logistics and quality assurance.
Reduce expenses elsewhere, such as cutting employee hours or delaying equipment upgrades.

Strategies for Michigan Small Businesses to Adapt

Michigan businesses can take proactive steps to minimize negative impacts and find opportunities in a changing global market:

Diversify suppliers – Avoid relying on a single country for imports by identifying alternative suppliers in regions not subject to high tariffs.
Negotiate better contract terms – Work with existing suppliers to explore pricing discounts or extended payment terms.
Invest in efficiency improvements – Streamline production processes, invest in automation, and adopt lean manufacturing techniques to offset higher material costs.
Explore new markets – If export markets are disrupted by retaliatory tariffs, pivot to domestic sales or seek out new international customers.
Stay informed – Subscribe to trade publications, attend industry webinars, and consult with legal and financial experts to make informed decisions.

Conclusion

Tariffs and trade policies are constantly evolving, creating both challenges and opportunities for Michigan small businesses. By understanding how these measures work and taking proactive steps to adapt, business owners can navigate uncertainty while positioning themselves for long-term success.
For businesses seeking guidance on trade law, compliance, and strategic planning, legal expertise is invaluable. True North Legal Group offers dedicated support to help Michigan businesses thrive in a shifting global economy. Contact us today to learn how we can help protect your business and ensure continued growth.