ANALYSIS · Growth

Tariffs and Small Business: The Impact Owners Reported on Costs, Prices and Suppliers

A Federal Reserve survey shows small firms facing higher imported input costs mostly passed some of the increase to customers and absorbed some, while very few changed suppliers.

Rendal Post Analysis Desk · Published October 2, 2026

On tariffs and small business, the Federal Reserve's Small Business Credit Survey points in one direction. In it, firms whose imported inputs got more expensive mostly passed some of the cost on to customers, absorbed some, and few changed suppliers. In the Federal Reserve Banks' 2025 Small Business Credit Survey, fielded in late 2025, only 13% of firms facing higher foreign input prices said they had moved to domestic suppliers. In our reading, that makes pricing, not sourcing, the lever owners actually pulled, and the Boston Fed's work suggests that how long owners expect the tariffs to last is a key input to what comes next.

Who felt the cost

Start with scope, because the numbers below come from different instruments. The 2025 Small Business Credit Survey was fielded from September 3 to November 14, 2025, and drew 6,525 responses from employer firms with 1 to 499 employees in every state plus the District of Columbia. The Reserve Banks state plainly that it is not a random sample and that its convenience design carries potential biases, so its shares describe respondents rather than every small company.

Within that group, more than four in 10 firms said increased costs associated with tariffs were a financial challenge in the prior 12 months. The share was highest in retail, at 69%, and manufacturing, at 62%, according to the Reserve Banks' report. Fortune's coverage of the survey in March 2026 put the overall figure at 42% and added two more sectors, with 61% in leisure and hospitality and 56% in healthcare and education.

Two researchers at the Federal Reserve Bank of New York, research analyst Will Aarons and financial research advisor Asani Sarkar, reworked the same survey using three sector groups (goods, retail and services) in a Liberty Street Economics post dated July 9, 2026. Nationally, 55% of goods firms, 67% of retail firms and 34% of services firms reported tariff-related challenges in 2025, the post found. They also flagged a caveat worth carrying: because 80 percent or more of firms in every sector reported general cost pressure, respondents might have blamed tariffs for ordinary inflation. Their check, comparing goods and retail firms with services firms, led them to conclude that respondents had identified tariff costs correctly.

Exposure runs through purchasing

The exposure is on the buying side of the business, not the selling side. In the Reserve Banks' survey, 48% of firms said they sourced at least some inputs from outside the United States in 2024, and 14% did so for more than half of their inputs. By contrast, about one in five had any sales to international customers that year, and for most of those, foreign buyers made up under 10% of sales, the same report found.

The New York Fed authors sharpened the split by sector. Among national respondents, roughly 70% of goods firms and 80% of retail firms used at least some imported inputs in 2024, while only about 30% and 20% respectively sold to customers abroad, according to Aarons and Sarkar. In our reading, a company with no foreign customers can still carry real tariff exposure in its bill of materials.

What owners actually paid

For the size of the hit, a separate source is more direct. Researchers at the Federal Reserve Bank of Boston, with coauthors including John Leer, chief economist at Morning Consult, analyzed waves of a Morning Consult survey of decision-makers at small and medium-sized businesses with 500 or fewer workers. The waves ran in December 2024 and in February, April and August 2025, with 500 to 600 participants each, the brief says, so these figures should not be read alongside the Credit Survey percentages above.

Asked in August 2025, firms affected by the new tariffs said their average tariff rate had gone from 6.5% in January 2025 to 11.4% in July 2025, nearly double, the Boston Fed brief reported. Expectations moved first: during the first four months of 2025, the average tariff rate surveyed SMBs expected rose from roughly 19% to about 25%, according to the same brief. The New York Fed post separately cited research showing that mid-sized firms with 50 to 499 employees paid sharply higher tariffs in 2025.

Pricing did most of the work

Once costs rose, owners reached for price. Among Credit Survey firms whose foreign inputs got more expensive, 76% passed at least some of the increase to customers and 60% absorbed at least some of it, the Reserve Banks reported. Few restructured supply: 13% switched to domestic suppliers, 8% to different foreign suppliers, and 3% moved production to the United States, per the same survey.

The New York Fed analysis found about 80% of goods and retail firms passed on part of the cost, and that 36% of goods firms and 43% of retail firms nationally did both, passing some on and absorbing some, according to Aarons and Sarkar. Their regressions showed older and more profitable small firms leaned toward passing costs on and away from absorbing them. The authors suggest that older firms, having survived, may have more pricing power, as profitable firms do, a point we read as a caution for younger or thinner-margin companies.

In the Boston Fed data, intentions shifted. In the April 2025 wave, importers said they would pass through about two-thirds of anticipated cost increases within a year, against roughly one-third in the earlier baseline, and by August 2025 non-importers had moved to nearly one-half, the brief found. Belief about duration was a powerful driver: in the February 2025 wave, firms expecting the new tariffs to last a year or more planned pass-through of as much as 70%, versus under 20% for those expecting them to be short-lived, the authors wrote. As of August 2025, more than 45% of affected firms expected their own costs to be affected for longer than a year, per the same brief.

Confidence and plans

The Credit Survey recorded a drop in forward-looking measures. Its revenue expectations index fell from 39 to 33 and its employment expectations index from 26 to 23, the lowest since the 2020 survey, the Reserve Banks reported. The report presents those declines alongside the cost findings without tying them causally to tariffs.

The New York Fed authors went a step further with the same data. National firms reporting tariff-related challenges in 2025 were less likely to expect higher revenue or employment in 2026, even after controlling for age, revenue, profitability and location, while broad inflation concerns showed no such link, according to Aarons and Sarkar. That is an association in a survey, and the authors present it as such.

An earlier and different gauge points the same way on uncertainty. The NFIB's July 2025 Small Business Economic Trends report, based on 953 usable responses from a sample of 10,000 NFIB member owners, showed its Optimism Index at 100.3, a little higher than its 52-year average of 98, while its Uncertainty Index rose 8 points to 97. The report, for which Chief Economist William C. Dunkelberg and NFIB Research Center Executive Director Holly Wade are responsible, listed tariffs, inflation and international conflict as sources of doubt and said uncertainty was "clouding decisions about hiring, pricing, investment" at that time.

The policy itself has kept moving. Fortune reported in March 2026 that the Supreme Court had ruled the bulk of the tariffs unconstitutional the month before, and that the administration was signaling it was exploring ways to raise and extend provisional tariffs then in place. The surveys above predate or sit beside those developments, and none of them measures their effect.

What to do with this

In our reading, three points from these sources are useful for an owner setting next year's plan. First, measure exposure on the purchasing side: the share of inputs sourced abroad is where the New York Fed located small firms' tariff exposure, which ran far higher than their reliance on foreign customers.

Second, make the duration assumption explicit, because it drove pricing plans in the Boston Fed's data. A company that expects tariffs to fade and holds prices is making a different bet from one that expects them to last and reprices, and the two should not be made by default or by different managers using different assumptions.

Third, treat supplier changes as slow. So few respondents in the Credit Survey had moved suppliers or production that, in our reading, sourcing shifts are better planned as a multi-year project than as a fix for this year's margins. Price, absorb, or both was what most surveyed firms did; the decision worth owning is the mix, and the New York Fed findings suggest that firm age and profitability, which the authors tie to pricing power, shape how much room a company has.