Businesses aren’t always in full control of their expenditures. Tariff policies in 2025 highlighted this fact, as sudden swings saw some tariffs fluctuate from 11% to 50%—or back down to original levels. Increasing uncertainty with U.S.-China relations didn’t help.
Unfortunately, these uncertainties tend to hit small businesses the hardest. Small businesses might have thinner margins and fewer buffers in their balance sheets. They may serve customers who are finding it increasingly difficult to afford goods. Is there some practical way smaller businesses can increase their resiliency to tariff expenses, including through diversification?
“Small business owners must plan how to respond to these new realities and the economic uncertainty ahead,” noted
But what can that response look like for smaller businesses with less macroeconomic wiggle room?
The real cost of tariff volatility for businesses
Imagine a small business operating with a 10% profit margin on a product that relies heavily on international trade. A tariff increase of 20-40% on the raw materials needed to produce that product can immediately erode the margins. Small firms, dependent on long-term contracts to reduce margins, don’t always have the leverage they need to renegotiate contracts.
If trade tensions spike, small business tariffs can have devastating impacts.
But costs alone aren’t the only risk with tariffs. The broader tariff impacts can complicate all sorts of plans. It may be increasingly difficult to document imports and exports. Businesses may need to make new logistical decisions in response to changing costs. And if a small business has to find a new source for its products, it could upend an entire business model.
Even if businesses can weather these storms, they can lose what created their market share in the first place.
Price competitiveness can go down. And companies may hesitate to expand to new markets because they’re uncertain about which tariffs will spike next. As the Business Development Bank of Canada (BDC) notes, “pursuing export opportunities in the EU often requires companies to navigate stringent regulations.” If you can handle these regulations, options like exporting to Europe can broaden your ability to diversify. You can think of it as “exporting risk.”
How can small businesses handle these challenges? There are multiple items to consider that will help you build a sharper tariff strategy.
Tariff strategy #1: Map and stress-test your supply chain
The best thing any small business can do is understand its current supply chain. Build a map. Where are the current suppliers? What are their countries of origin? What are their shipping routes? Are there any tariff-sensitive inputs that go into making your products? These are critical questions to answer because many companies don’t realize just how many key components may originate in tariff-targeted countries.
Next, a small business should run some stress tests.
“What happens if tariffs rise 10%? 50%?” “What if a supplier country becomes politically unstable?”
This will help you identify single-source dependencies and components without any alternative suppliers, which highlights the key risks you need to hedge against.
Tariff strategy #2: Reduce single-country dependence by looking for multi-region supplier diversification
Now that you’ve identified the risks, diversification is the best way out. If you can source across several low-risk regions to reduce tariff exposure, you’ve already made a lot of headway.
For example, Chile offers a highly open and stable trade regime, with low, predictable tariffs (around 6% MFN) and over 30 FTAs covering more than 65 economies, making it a strong partner to support a more diversified and resilient supply chain.
This may require some macroeconomic and geopolitical analysis.
Look at current trade relationships and evaluate tariff history across regions with relatively stable policy environments.
For example, the EU and Chile, ASEAN and China, or the EU and Vietnam. Reviewing how these trade corridors have evolved over time can help you spot patterns in tariff exposure, policy consistency, and regional risk before making sourcing decisions.
Tariff strategy #3: Diversify beyond suppliers by looking at multiple markets
Diverse suppliers can help you remain resilient as a business. But what about zooming out? You may need to diversify markets if you’re going to remain tariff-proof. Multiple markets will offset your risk thanks to basic diversification: if tariffs rise with one market, your revenue can still remain stable overall.
Expanding into additional regions, like Europe or Canada, can help spread your risk around. BDC highlights that exporting to Europe offers stable demand, for example. The downside is a heavy regulatory environment. But if you treat options like these as a part of a broader tariff strategy, you’ll realize that it’s possible to establish footholds in new markets that expand your ability to weather risk.
Tariff strategy #4: Look for leverageable trade agreements and preferential tariff programs
So far, the strategies mentioned have been defensive. But there are more assertive strategies for building a diversified portfolio of suppliers.
To begin, look for any relevant free trade agreements, or unilateral preference programs, that are in place in your industry.
Are there any that reduce costs immediately? Are there unique exceptions for some products that will keep your business with a sustainable profit margin?
You can also shift your sourcing or assembly operations to countries with more favorable agreements. Maybe the answers to the questions above aren’t favorable now. However, if you can develop a small business strategy that spans multiple countries, you may potentially benefit from lower tariffs on products assembled in specific regions.
Tariff strategy #5: Create a real-time tariff monitoring system
You may look at these strategies and wonder how sustainable they are if tariff conditions shift unexpectedly. It’s a valid concern. The truth is no one has a crystal ball for future tariff policy. However, you can build an advanced warning system by designating a person or a team to track tariff announcements and political developments. They may even be able to look at trade negotiations to see where specific industries may be headed.
Look at government trade portals, international trade news, or even consider hiring consultants.
The key is to build a list of trusted sources for forecasting trade developments. You may not expect 100% accuracy, but you should look for a reliable set of sources that can decrease your risks because you feel increasingly “in the loop” for tariff changes.
Tariff strategy #6: Price and plan for the most uncertain tariff environment
Ever hear the phrase “hope for the best, prepare for the worst?” This is a variant of that. You may consider introducing tiered pricing strategies, or terms that allow mid-contract tariff adjustments. Customers don’t always like these, so make sure that your tariff pricing policies are clear and well-articulated at every point.
Assess different tiers of risk and develop a strategy for each one. What happens if tariffs increase by 10%? How will you respond? And how will that response differ if your tariffs increase by 50%?
Tariff strategy #7: Increase your operational flexibility
The more flexible your operations are, the more quickly you can pivot if there’s a sudden tariff shift. One great starting point: modular production processes. If you can design products so components can be swapped with equivalents from different suppliers, you’ll avoid getting “locked” into any specific solution.
Flexibility is just as important from a logistics perspective.
Can you use multiple distribution hubs (ports, warehouses, fulfillment centers) to weather a geopolitical storm?
This kind of strategy isn’t just important for tariff flexibility, but total flexibility in the face of geopolitical risks.
Reframing tariff risks as a strategic advantage
Tariff risks will always be there. So will the uncertainty of geopolitical risks. Global trade is shifting, and regulations are increasing. But if you can find a way to map your supply chains, diversify across both suppliers and markets, and build more flexible operational systems, you’ll shift these risks into a potential advantage. Your ability to pivot quickly could keep your prices stable in the face of future geopolitical storms, which isn’t true for every small business.
Small businesses can’t control policy. But they can control how prepared they are for volatile policies. Build a diversification strategy that gives you some peace of mind that no matter what the next headline in international trade may read, you’re ready for it.
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