Higher costs, labor shortages, and strained profit margins: A look at what small businesses could face under Trump

A stark reality check looms for America’s 33 million small businesses: while campaign promises suggest dramatic economic shifts, market indicators tell a different story. This disconnect—between political rhetoric and market expectations—creates both uncertainty and opportunity for SMBs, which represent 43.5% of US GDP and employ nearly half of private sector workers.  While Trump touts lower interest rates, aggressive tariffs, and mass deportations, the reality may look different. Markets are anticipating more restrained changes. It is this gap—between ambitious promises and realistic expectations—that will most affect small businesses. So, what does this mean for American small businesses caught in the middle?  Interest rates: The Fed’s independence vs. political promises   Despite presidents historically having limited influence over the Federal Reserve, Trump has repeatedly promised lower interest rates if he returns to power. He also claims that U.S. energy independence—achieved primarily by drilling domestically—will curb inflation.  The reality is that the Federal Reserve acts independently of political pressures and is not beholden to any presidency. The recent quarter-point rate drop in November was an exception rather than a trend. With inflationary pressures still looming, the Fed is unlikely to lower rates as quickly as Trump hopes. Furthermore, achieving true energy independence is not only improbable but also disruptive to global markets.  For small businesses, borrowing costs remain high—currently around 6.5%, compared to under 3% in November 2021. A Trump presidency is unlikely to reverse these market trends. Inflation continues to limit consumer spending power, and mortgage rates already increased following the election.  With tightened consumer spending and limited presidential influence over the Fed (as Chair Powell remains steadfast), interest rates are only going to dip if inflation metrics change dramatically from here. Elevated borrowing costs will continue to hinder SMBs’ ability to secure affordable loans and grow. Coupled with persistent inflation pressures, this points to a stingy winter season ahead.  Tariffs: A hidden tax on small business growth  Another Trump 2.0 promise is a massive increase in tariffs—10% to 20% on all imports, with even higher rates for China. The assumption is that discouraging imports will drive domestic production. However, history suggests the opposite.  Even a more modest 10% increase in tariffs could raise inflation by 0.8%, disrupt supply chains, and elevate costs for U.S. manufacturers and consumers alike. Higher labor costs will amplify these challenges, impacting everyone from everyday consumers to corporations.  Markets are preparing for the worst but expecting more modest tariffs, especially in key industries. During Trump’s first term, tariffs on thousands of products led to $80 billion in new taxes, creating significant burdens for businesses and consumers. The cumulative impact amounted to $380 billion in 2018 and 2019, marking one of the largest tax increases in recent years.  If history repeats itself, small businesses, especially the 75% of which depend on imports, will face rising operational costs, supply chain challenges, and reduced profit margins. Even a modest tariff increase could squeeze SMBs, forcing many to pass higher costs onto consumers or absorb the losses themselves.  The worst-case scenario for small businesses is clearly Trump’s tariff tantrum, but even modest tariffs could strain profit margins.  Immigration policy: The true cost of labor market disruption  Perhaps the most extreme promise in Trump’s second term is the largest deportation campaign in U.S. history. Vice President-elect JD Vance has stated that over 11 million undocumented immigrants will be deported within six months—a logistical and economic nightmare that could deeply impact industries reliant on immigrant labor.  The American Immigration Council estimates that it would cost $315 billion to arrest, detain, and deport all individuals living undocumented or under a revocable temporary status. Not to mention, the disruption to labor markets would be enormous.  If Trump accomplishes even half of this campaign, the employment market will feel the strain. Many industries—including hospitality, agriculture, and construction—depend on immigrant labor. During the height of the pandemic, immigrant workers helped fill critical labor shortages, prompting job growth and curbing inflation. Removing this essential workforce could lead to severe labor shortages, hindering profitability and growth potential for SMBs across key sectors.  Trump’s extreme policies could mean a challenging environment for small businesses—higher costs, labor shortages, and strained profit margins. While historically small businesses have shown resilience, adapting to higher tariffs, elevated interest rates, and reduced immigrant labor will r