“At this point the tariffs have wiped out 115% of our profit. I’m putting in personal funds to keep our business operating and retain our employees.”
- Richard May
MFG Direct USA
Stories like that aren’t rare anymore; they’re becoming the baseline for how small and mid-sized merchants are surviving in 2025.
For small and medium-sized merchants, tariffs have become a serious operational strain. Nearly two-thirds of small businesses say tariffs are hurting their operations. It’s not that businesses haven’t tried to adapt by changing suppliers, cutting costs, or raising prices, but most of those adjustments haven’t worked as expected.
We’ll explore each of these attempts below and see why, for most merchants, the solutions haven’t matched the struggle.
Meanwhile, large retailers keep pulling ahead. In Q2 2025, Walmart and Amazon captured more than half of all new retail spending, while smaller businesses absorbed an estimated $85–100 billion in direct tariff costs.
To put that in perspective, that’s roughly one out of every six dollars of small business revenue lost to tariff-related expenses.
Even more damaging- in late August 2025 the government ended the de minimis rule the decades-old exemption that allowed packages under $800 to enter the country duty-free. For all businesses, that single change flipped their situation overnight.
So, what does “adjusting” even mean when the baseline keeps changing?
For bigger corporations, this may just be another step. But for smaller businesses, it means more paperwork, slower turnaround times, and higher costs adding up to roughly $4–16 billion a year in administrative expenses.
But beyond the cost, it’s just the unpredictability that’s breaking business-owners.
And that strain is reflected across sentiment surveys-
Eighty-one percent may sound statistic, but in sentiment terms, that’s near unanimous, a rare level of public agreement that small business is in trouble.
As Kathy Knack, owner of a small interior design store in Virginia, said,
“Owning a small business is not for the faint of heart,” Knack said. “Because of the tariff volatility… 40% one day… 145% the next, my vendors don’t know what their costs will be, so I don’t know what mine will be.”
If you have been in similar shoes, you realize how this kind of uncertainty makes it almost impossible to plan whether it’s inventory, pricing, or cash flow.
With the holiday season’s preparations are underway, most small merchants are still uncertain about their supply chains. Some are testing local sourcing, some exploring near-shoring, while others are tweaking prices just enough to stay competitive.
For small merchants, higher prices only a part of the headache. But it’s how tariffs have tangled into everything else- cash flow, financing, supply chain and daily operations- that’s causing real strain and pushing many toward an existential crisis.
While large retailers can delay payments or get better credit terms from banks, most small importers can’t. They have to pay tariffs upfront before their shipments are released. The Federal Reserve Bank of Atlanta noted that only 27% of small importers have strong enough credit scores to get new loans, compared to 70% of large importers. The difference is stark.
When small Amazon sellers raise prices to offset tariffs, they often lose the Buy Box, cutting into visibility and sales. Since about 70% of goods sold on Amazon come from China, even small price changes can disrupt overall revenue.
A retailer listed on Amazon shared-
“We are raising the price of our listing to align with the other variations, our price is still stuck at 26.99 but every time we increase it above $27, the Buy Box gets removed”.
And one home furnishings seller doing $50–100M a year said they raised prices by 20% and instantly lost visibility. “It’s our product,” they told Fortune. “Punishing us for raising prices is overly controlling.”
So, merchants end up stuck tariffs on one side, platform rules on the other.
Manufacturing locally sounds like the obvious answer, but it rarely works in practice.
Rozalynn Goodwin of GaBBY Bows in South Carolina has tried this for years. She shares-
"We have, for the last eight years, been trying to manufacture in the United States. Every manufacturer in the United States we've spoken to has told us, 'You need to continue making this in China. It's going to cost you three to four times more to make it here.'"
Even when production is local, materials often still come from China. The truth is that tariffs do not automatically build resilience; they only expose how dependent even "local" manufacturing still is on global inputs. The capacity isn’t there yet.
Unlike the giants, most small businesses operate with slimmer margins, less diverse supply chains, and limited negotiating power. Big players can stock up before tariffs hit, cut better deals, and ride out the storm longer, while smaller retailers see profit margins drop from 6 percent to around 3.5 percent, a decline that’s simply not sustainable.
The effect is visible across everyday products.
Additionally, constant contact survey of 2,500 small businesses backs it up:
At this point, it’s not about long-term strategy anymore, it’s just about whether the doors stay open for another season.
Most merchants have tried to adapt. Some shifted suppliers, others reshored, and a few tried absorbing the costs. But for small and mid-sized businesses, these strategies rarely stick not because of lack of effort, but because of structure.
Reshoring sounded promising, but higher labor costs and limited domestic capacity make local manufacturing difficult. Even “Made in America” often still depends on imported materials, so the tariff pressure never fully leaves.
Near-shoring to Mexico hasn’t delivered either. According to Bain & Company, about 80% of operations leaders say they plan to move production closer to home in the next three years, only around 2% have actually done it. The rest are still stuck somewhere between planning, financing, and paperwork.
And there’s a reason for that.
Factory space in Mexico has become hard to find. Industrial parks around Monterrey, Tijuana, and Mexico City are nearly full, and rents have jumped more than 20% compared to last year.
The country’s power grid is also under pressure, forcing some manufacturers to rely on backup generators just to keep production stable. And theft along trucking routes is still a real problem, adding more cost for insurance and security.
Offshoring alternatives like Vietnam, Thailand, or India looked like loopholes, but many of those shipments were ruled Chinese in origin and hit with the same duties.
In 2025, the U.S. found that many of these “new routes” were just Chinese products passing through other countries. The Commerce Department ruled that shipments from Vietnam, Thailand, Malaysia, and Cambodia were still Chinese in origin and hit them with the same duties.
Soon after, U.S. Customs and Border Protection (CBP) uncovered $400 million in unpaid tariffs through duty-evasion investigations. Dozens of importers were caught rerouting goods through Southeast Asia to dodge tariffs, and all faced full penalties.
And really, how are merchants supposed to plan when the rules shift faster than their supply chains can?
Some merchants tried using the “substantial transformation” rule, which allows a product to count as made in another country if its name, character, or use changes. But Customs has tightened that definition. Light assembly or minor finishing work no longer qualifies, the tariffs still apply if the main components are Chinese.
For smaller merchants, it’s another dead end- tariffs they can’t escape.
Then there’s the 90-day pause problem, those temporary tariff suspensions that sound like relief but don’t help anyone. You can’t rebuild a supply chain in three months. As one Harvard Business Review analysis put it, “Global supply chains can’t change on a dime, or even with a 90-day pause.”
Even when businesses try to adapt, new problems appear. Some suppliers reroute shipments through other countries or tweak documentation to avoid tariffs. But if Customs flags it, the importer, not the supplier, pays the fine.
As the Trade Compliance Resource Hub notes, importers “bear the legal and financial consequences, even if the misrepresentation was made by a supplier.”
In reality, the strain cuts both ways; suppliers under pressure to move goods, and importers caught in the compliance fallout.
The Harvard–Wharton assessment described it best:
“The huge uncertainties unleashed by Trump’s tariff war have made business planning almost impossible. Imagine coaching a game in which the rules change every minute. How would you even play?”
That’s exactly how it feels for almost every business right now; too many moving parts, not enough control. They don’t lack ideas or strategies. They just don’t have the cushion, the capital, or the time to make those strategies work before the rules shift again.
Between 2023 and 2025, retail turned into a two-lane highway: one side accelerating with scale, the other stuck behind tariff costs, thin margins, and slower spending.
Let’s see that difference in action.
Prime Day has become the perfect picture of how the retail game is shifting and not in favor of smaller players.
In 2023, U.S. shoppers spent $12.7 billion over two days. 2024 grew to $14.2 billion and by 2025, the event doubled to four days and hit $24.1 billion a 30% jump year-over-year.
Of course, it sounds huge, except the average order value fell to $53.34 from $57.97, showing that shoppers bought more, but spent less per item. But you see, there’s more-
Small merchants felt the shift first. According to Momentum Commerce, their sellers saw sales down 41% on Day 1 compared to 2024. Discounts dropped from 24% to 21% because margins were already crushed by tariffs and import costs.
Rick Sliter, CEO of MedCline, a company that sells $250 therapeutic pillows made in China and Vietnam said he’s holding back on Prime Day this year. “Last year, Prime Day was a no-brainer,” he told Reuters. “But if tariffs continue, discounting gets thrown out the window.”
In 2024, Sliter’s Prime Day sales were seven times higher than a normal day. This year, he’s skipping discounts- entirely choosing to wait it out rather than sell below cost.
Maybe that’s the story here; overall sales climbed, but not because merchants earned more. The four-day stretch inflated total volume; Amazon’s own brands carried a larger share, and the platform likely gained through commissions, ads, and logistics fees, even as many sellers moved fewer units or made thinner profits.
The same pattern repeated in October’s Prime Big Deal Days (PBDD). Stackline reported 11 billion dollars in U.S. sales, down 0.4 percent from last year, even as unit volumes rose across most departments. Average selling prices fell almost everywhere:
Consumers are still spending, just differently. Prime Day’s headline numbers tell one story; the distribution tells another. Growth hasn’t vanished, it’s just been redistributed upward.
The message is hard to miss now- big platforms are winning, while the merchants who depend on them are barely holding on.
Take Apple. In 2023, Apple shipped 231.8 million iPhones globally. That slipped 2.6% in 2024, down to 225.7 million, before bouncing back in 2025 to 237 million units shipped by Q3 . Revenue hit $212 billion in just the first nine months of the year.
Tim Cook told analysts that iPhone prices “haven’t appreciably gone up,” even amid tariffs. Apple’s is just one example of how the size changes the game; you can see the same pattern across retail’s biggest players.
Platform dependency is rising
E-commerce keeps growing, but the rewards aren’t spread evenly.
According to the U.S. Census Bureau, online retail now makes up about 16.3% of all U.S. retail sales (Q2 2025), up slightly from 16.1% in 2024. It’s still expanding faster than total retail, but most of that momentum sits with the platforms, not the independent sellers who rely on them.
And that dependency has a price tag. Amazon’s referral fees, or commissions on each sale, range between 8% and 15% for most categories. Some, like accessories, go as high as 45%.
On top of that, sellers pay $39.99 a month for a Professional plan, plus fulfillment, storage, and advertising fees if they use Fulfillment by Amazon (FBA).
By the time everything’s tallied; referral fees, fulfillment costs, and ad spend many small merchants end up giving back around a quarter of every sale just to stay visible on the world’s largest storefront.
The spending slowdown beneath the surface
Consumers, too, have started spending more carefully.
Overall U.S. retail sales grew 3.6% in 2024 to reach roughly $5.29 trillion. For 2025, the NRF expects growth to slow to 2.7–3.7%, signaling a clear cooling trend as inflation, tariffs, and general uncertainty that’s reshaping household budgets.
The PwC Holiday Outlook 2025 shows just how that’s playing out.
PwC calls it the first major holiday spending decline since 2020, but the behavior behind it runs deeper. Consumers aren’t just reacting to higher prices; they’re redefining what feels worth it. And 84% of Americans plan to cut back over the next six months, citing rising prices, tariffs, and general fatigue. But the same surveys note that shoppers still want a sense of normalcy, value, and brands that get them.
Large retailers aren’t just absorbing tariffs they’re using them as leverage. They have the size, the systems, and the cash to turn policy volatility into bargaining power.
As Oxford Analytica noted, companies like Walmart, Target, and Costco are pressing Chinese suppliers to cut prices. When you’re placing an order for one million units instead of one thousand, the supplier always finds room to “negotiate.”
And then there’s timing.
Big retailers stockpile inventory months before tariffs kick in, locking in pre-tariff pricing while smaller merchants scramble to pay duties upfront at the port.
Walmart’s CFO even said it outright:
“We’re equipped to manage this as well or better than other retailers.” Why do you think that is?
Because, big corporations can spread risk across multiple profit streams like advertising, logistics, and digital services. Walmart executives call it their “diversified set of profit streams,” which means they can afford to hold prices steady. In fact, they says only about 1 in 10 imported items has seen a price increase.
So, while big retailers turn tariffs into strategy, smaller ones are just trying to stay visible.
For most businesses, forget absorbing margins. They don’t even know if they’ll exist in the next few months.
Katrina Golden, who runs a small bakery and coffee shop in Augusta, Georgia, sees it firsthand-
“We went from making $600 a day last year to struggling to make $350 now,” she told On Point. “We’re looking at the first quarter of 2026, we’ll either have to raise prices or close.”
Her daily sales are down more than 40%, and she’s not sure she’ll make it to 2027.
And that uncertainty compounds. The U.S. Chamber of Commerce reports that nearly half of small businesses have already raised prices to cope, yet most say it hasn’t made much difference. Feels like fixing one problem just creates two new ones.
Customers are cutting back, costs aren’t stabilizing, and the cycle keeps feeding itself.
When you’re running on 2–4% profit margins, even one surprise duty fee or shipping delay can erase an entire week’s earnings.
And that’s what it’s come down to- not whether business is good, but whether it’s still possible.
At the start of 2025, many still hoped tariffs would stabilize at manageable levels. According to the Federal Reserve Bank of Boston, nearly 40% of small and mid-sized businesses expected tariffs to remain at 10% or less, and about 20% thought they’d cap around 5%.
Reality, of course, didn’t match the spreadsheet.
Instead of consistency, merchants got volatility, tariff hikes, short-term suspensions, shifting exemptions, and supply chain bottlenecks that turned every import cycle into “I am not sure”.
The Small Business for America’s Future survey gives us the border picture on the situation:
And when merchants do act, it’s usually just to keep things running.
Meanwhile, big companies are riding out volatility with ease. Adidas raised its 2025 profit outlook after “mitigating” tariff costs through pricing and efficiency. General Motors cut its expected tariff hit from $5 billion to around $3.5 billion and still raised its earnings forecast.
Small businesses, by contrast, operate in survival mode. Franco Salerno, who runs Darianna Bridal & Tuxedo in Pennsylvania, said:
“As we speak, we’re printing out new price tags. Dresses we sold months ago were priced before the tariffs. When they arrive, those tariffs are on us. We can’t go back to the bride and charge more so we absorb it.”
Finally,
This holiday season was supposed to be the rebound, the one where shoppers return, spending steadies, and small merchants finally breathe. Instead, it’s starting to look like another test of endurance.
Every merchant conversation today circles the same questions, how much longer can we hold on, and what does “winning” even look like when survival itself feels like strategy?
Maybe the real question isn’t how merchants will adapt, but how long they’ll keep trying to play a game that keeps changing its rules.
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