Small businesses face their own affordability crunch because of tariffs and health insurance costs
CBS NEWS) – According to CBS News, some small business owners say they are facing their own affordability crisis because of higher tariff, health insurance, and energy costs.
Shirley Modlin, who owns 3D Design and Manufacturing in Powhatan, Virginia, told CBS News that rising operational expenses are making it tough for her to offer raises and health insurance for her 10 workers.
Modlin, whose company makes metal parts for the automotive, pharmaceutical, beverage and other industries, said uncertainty over where U.S. tariff rates will settle makes it hard to forecast her costs.
“It’s the end of the year and my employees are expecting some kind of raise, but I don’t know how much I can give them because I don’t know what kind of impact the tariffs are going to continue to have on me,” Modlin told CBS News.
“I feel like I am in a balancing act, and if I don’t raise prices and my costs are going up, that squeezes my margins harder,” she added.
U.S. importers currently face an average effective tariff rate of 16.8%, the highest level since the 1930s, according to the Yale Budget Lab, a nonpartisan policy research center.
Small business importers paid roughly $25,000 more per month on average due to the Trump administration’s tariffs between April and September, compared to the same period in 2024, according to a new analysis from the Center for American Progress (CAP), a nonpartisan policy research institute.
“What should be a season of giving has become a season of paying for America’s 36 million small businesses,” Sen. Ed Markey, a Democrat from Massachusetts, said at a press conference on Tuesday held by the U.S. Senate Committee on Small Business and Entrepreneurship. “They are paying more for affordable health care, more for electricity and more for just about everything, thanks to Trump’s tariffs.”
The Supreme Court is expected to rule on the legality of Mr. Trump’s country-based tariffs soon. If they are struck down, however, he has other tools he can employ to implement similar levies, according to legal experts.
Who’s to blame?
A spokesperson for the Republican members of the Senate Committee on Small Business and Entrepreneurship blamed small businesses’ challenges on Democrats.
“Four years of Democrat control of Washington created a historic affordability crisis for small businesses as inflation soared and an unprecedented $1.8 trillion in new regulations were created,” the spokesperson told CBS News. “In just 11 months, Republicans have begun to undo the damage by passing the largest tax cut in history to complement the $907 billion regulatory rollback being undertaken by the Trump administration.
“The results speak for themselves as we just witnessed a record number of holiday shoppers, core inflation fell to the lowest level in five years, and hardworking Americans’ real wages will increase by $1,000,” the spokesperson added.
Spokespersons for the White House and Small Business Administration didn’t respond to a request for comment on the affordability concerns cited by some small businesses.
Another major concern for Modlin and her workers is that enhanced tax credits for health insurance under the Affordable Care Act (ACA) are set to expire at the end of 2025, which experts have said would sharply drive up premiums for more than 20 million Americans.
An October CAP analysis found that 4.4 million small business owners and self-employed Americans will see their health insurance costs rise by an average of $1,500 if the ACA subsidies are allowed to expire.
In 2024, Modlin offered employees a $350 monthly stipend to help offset health plan costs. Now, she said she’s trying to decide whether to increase that monthly payment or offer raises. She can’t afford to do both, said Modlin, expressing concern about losing some of her machinists to larger competitors.
“I’ve interviewed job candidates who have said they need a better health insurance benefit,” she said. “The rest of our benefits are good, but I just can’t keep up with the cost of insurance.”
Julie Robbins, CEO of Earthquaker Devices, an Akron, Ohio-based maker of guitar pedals and other musical effects products, said the 35-person company’s costs have soared about 30% this year because of the sharply higher U.S. tariffs on imports.
She and her husband, with whom she runs the business, purchase thousands of components sourced from more than a dozen countries to manufacture pedals in Ohio. The company has paid an additional $60,000 in tariffs this year, a figure that could rise to at least $180,000 in 2026, Robbins said at the Senate small business event held earlier this week.
Robbins said Earthquaker plans to modestly hike its prices starting in January, noting that the company’s suppliers have lifted their own prices. She acknowledges that such increases could scare away some customers.
“You can’t calculate how demand will suffer from a price rise, so we try to avoid that whenever possible,” Robbins told CBS News.
In November, 34% of small businesses raised their average selling prices, an unusually sharp jump from previous months, according to Bank of America analysts, citing recent data from the National Federation of Independent Business.
“This suggests businesses are passing on tariff and inflation-related costs” to consumers, Bank of America said in a report.
