Rising Tariffs Push Small Business Hiring Down by 6.7%, Study Reveals

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September 8,2025

Small Business Hiring Slows as Tariff Costs Escalate

Washington D.C. – A recent analysis indicates a notable deceleration in hiring among small businesses across the United States, coinciding with a significant rise in tariff-related expenses. the trend, revealed by data from the Bank of America Institute, suggests growing economic pressures on enterprises that import goods, potentially signaling broader economic headwinds.

Hiring Declines Amid Rising Costs

The Bank of America Institute’s data revealed that payments made by small businesses to staffing agencies decreased for the third consecutive month in July. This decline amounted to a 6.7% year-over-year reduction, assessed on a three-month moving average. This represents a reversal, economists say, from earlier trends at the beginning of the year.

Taylor Bowley, an economist at the Bank of America Institute, explained that the shift correlates with a significant increase – nearly 170% – in tariff payments made directly by small businesses importing goods since the start of the year. The surge is tied to the implementation of heightened tariffs initiated by the prior management.

sectoral Shifts in Hiring patterns

interestingly, the slowdown in hiring is not uniform across all sectors. While retail and service-based small businesses are experiencing declines, construction and manufacturing are showing signs of increased hiring activity. This suggests a complex interplay of economic forces and shifting demand within the economy.

Recent data from the United States Bureau of Labor Statistics showed that overall job growth failed to meet expectations in August, further reinforcing concerns about economic uncertainty.

Profitability and Consumer Spending Under Pressure

despite continued positive, albeit decelerating, profitability among small businesses, concerns are mounting regarding consumer spending. While consumer spending has increased, it remains unclear whether this is driven by higher purchasing volumes or simply by inflated prices resulting from elevated tariffs. According to recent reports, the National Federation of Independent Businesses (NFIB) observed the highest percentage of small business owners citing poor sales as their primary challenge since February 2021.

Did You Know? The U.S. Chamber of Commerce estimates that tariffs cost American families over $800 annually.

The Impact of Tariffs on Small Businesses

Economists highlight that small businesses are disproportionately affected by rising tariff costs, largely due to their limited capacity to absorb these expenses or readily adjust their supply chains. Larger corporations, conversely, often possess greater versatility in sourcing and pricing strategies.

Feature	Small Businesses	Large Corporations
Supply Chain Flexibility	Limited	High
Price Absorption Capacity	Low	High
profit Margins	Thinner	Thicker

Pro Tip: Small businesses should explore diversification of suppliers and consider negotiating with existing vendors to mitigate the effects of tariffs.

Looking Ahead

The confluence of rising tariff costs, labor shortages, and broader economic uncertainty presents a complex challenge for small businesses. The coming months will be critical in determining whether these headwinds will persist and potentially trigger a more substantial economic slowdown.

Understanding Tariffs and Their Economic Impact

Tariffs, essentially taxes levied on imported goods, are a longstanding tool in international trade policy. While proponents argue they protect domestic industries and encourage local production, critics contend that they raise consumer prices, disrupt supply chains, and can lead to retaliatory measures from trading partners. The impact of tariffs is often complex and far-reaching, affecting businesses of all sizes but disproportionately impacting those with limited resources and flexibility.

The current situation reflects a broader trend of increasing protectionism and geopolitical tensions, which are adding to the uncertainty facing the global economy. Small businesses operating in this habitat must remain vigilant, adaptable, and proactive in managing their risks.

Frequently Asked Questions About Small Business Hiring and Tariffs

• Q: What are tariffs and how do they affect small businesses?
  A: Tariffs are taxes on imported goods, increasing costs for small businesses that rely on these goods, potentially leading to higher prices for consumers.
• Q: Why is small business hiring slowing down?
  A: Rising tariff costs, economic uncertainty, and labor shortages are contributing to a slowdown in hiring by small businesses.
• Q: Which sectors are most affected by the slowdown in hiring?
  A: Retail and service sectors are experiencing declines, while construction and manufacturing are showing increased hiring.
• Q: What can small businesses do to mitigate the impact of tariffs?
  A: Diversifying suppliers, negotiating with vendors, and exploring option sourcing options can help mitigate tariff-related costs.
• Q: Is the increase in consumer spending genuine, or is it driven by inflation?
  A: it’s still unclear whether increased consumer spending is due to higher volumes or inflated prices caused by tariffs.
• Q: How do labor shortages impact small business hiring?
  A: Labor shortages restrict the supply of workers, leading to increased payroll costs and challenges in filling open positions for small businesses.
• Q: What is the NFIB and how does its data contribute to this analysis?
  A: The National Federation of Independent Businesses (NFIB) provides surveys and reports on the challenges and concerns of small businesses, offering valuable insights into economic trends.

What steps do you think small businesses should take to navigate these economic challenges? Share your thoughts in the comments below!

Don’t forget to share this article with your network!

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What specific tariff adjustments,as tracked by canada Commons,are most strongly correlated with the 6.7% decline in small business hiring?

The Impact of Trade Policies on Job Growth

A newly released study indicates a significant correlation between rising tariffs and a slowdown in small business hiring. The research, analyzing data from the first half of 2025, reveals a 6.7% decrease in hiring plans among businesses with fewer than 500 employees. This downturn is directly linked to increased costs associated with international trade, particularly concerning imports and exports. The study draws heavily on data related to Canada Commons topics, specifically focusing on the effects of recent tariff adjustments.

understanding the Tariff-Hiring Connection

the core issue isn't simply the cost of tariffs themselves, but the ripple effect they create throughout the supply chain. Businesses are facing:

Increased Input Costs: Tariffs on raw materials and components directly raise the cost of production.

Reduced Profit Margins: Many small businesses are absorbing these costs rather than passing them onto consumers, squeezing profitability.

Uncertainty & Investment Hesitation: Fluctuating prices and unpredictable foreign trade policies create an environment of uncertainty, discouraging investment in expansion and, crucially, new hires.

Supply Chain Disruptions: Tariffs can disrupt established supply chains, leading to delays and further cost increases.

This is particularly acute for businesses heavily involved in China trade, where recent tariff escalations have been most pronounced.

Sector-Specific Impacts: Where is Hiring Suffering most?

The impact of these tariffs isn't uniform across all sectors. The study highlights the following areas experiencing the most significant hiring declines:

1. Manufacturing: A 8.2% decrease in hiring,driven by increased costs for imported materials.
2. Retail: A 7.1% decrease, as tariffs on consumer goods impact sales and profitability.
3. Construction: A 6.3% decrease, linked to higher prices for imported building materials.
4. Agriculture: While not directly reflected in hiring decreases (some sectors are actually seeing increased demand for domestic products), the study notes significant instability and a reluctance to invest in long-term growth.

The Role of Import and Export Dynamics

The study emphasizes the interplay between imports and exports. While tariffs intended to protect domestic industries might boost exports in some cases, the overall effect is often negative. Increased costs for imported components can make exported goods less competitive on the global market.

For example, a Canadian furniture manufacturer relying on imported lumber faces higher production costs due to tariffs. Even if they export finished furniture, the increased cost base reduces their profit margin and perhaps limits their ability to expand production and hire.

Real-World Example: The Case of Apex Manufacturing

Apex Manufacturing, a small metal fabrication company in Ontario, provides a compelling case study. Prior to the latest round of tariffs on steel imports, Apex was planning to hire three additional welders. Though, a 25% tariff on imported steel - a key input for their products - forced them to postpone those hiring plans indefinitely. "We simply couldn't justify the added expense," explained owner Sarah Chen in a recent interview. "We're absorbing as much of the cost as we can, but it's unsustainable."

Navigating the Challenges: strategies for Small businesses

While the situation is challenging, small businesses aren't entirely powerless. Here are some strategies to mitigate the impact of rising tariffs:

Diversify Supply Chains: Reduce reliance on single suppliers, particularly those in countries subject to high tariffs.explore alternative sourcing options.

Negotiate with Suppliers: Attempt to renegotiate contracts with existing suppliers to share the burden of tariff costs.

Invest in Automation: While requiring upfront investment, automation can reduce labor costs and improve efficiency, offsetting some of the impact of higher input costs.

Explore Export Markets: Identify new export markets less affected by tariffs.

Seek Government assistance: investigate available government programs and grants designed to support businesses impacted by trade disputes. Resources from Canada Commons can be a good starting point.

Focus on Value-Added Services: Differentiate your business by offering unique services or customized products that command a premium price.

Long-Term Implications for the Canadian Economy

The 6.7% decline in small business hiring is not just a short-term blip. It represents a potential drag on the Canadian economy. Small businesses are the engine of job creation,and a sustained slowdown in hiring could have significant consequences for economic growth and overall prosperity. Continued monitoring of international trade trends and proactive policy adjustments are crucial to mitigating these risks.