How tariffs and war are hurting California small businesses

Small businesses already navigating the costs and chaos of tariffs must now also contend with the effects of the war in Iran.

鈥淚t just feels like things keep getting piled on top,鈥� said Nichole MacDonald, owner of a San Diego business that sells women鈥檚 bags. 鈥淣ot just for businesses, but for consumers. And what is a business without consumers?鈥�

Since her customers are feeling financial pain just like her, they鈥檙e spending less money on discretionary items, she said. If they are still buying, they鈥檙e choosing denim bags over leather because they鈥檙e cheaper.

鈥淓ach level of pressure, economic uncertainty and tightening of the purse strings impacts people鈥檚 decisions on spending,鈥� the owner said.

Other small retailers in the area tell similar stories of increased costs and having to adjust to continued tariff uncertainty in the wake of the that invalidated the bulk of President Donald Trump鈥檚 wide-ranging tariffs. In some cases, such as if they imported their own goods, they might be able to apply for tariff refunds, though the timeline for receiving refunds is unclear. The president also imposed new tariffs based on a different law, against which California and other states have .

Meanwhile, everyone has been hit with higher shipping costs because fuel prices have gone up. The average price for regular unleaded gas in the state is $5.55, up from $4.79 a year ago, according to AAA. The national average is $4.11 vs. $3.15 a year ago. The spikes in gas prices caused in March. Consumer confidence is .

Higher prices hit small businesses 鈥� defined as those with fewer than 500 employees 鈥� harder than big ones, and some wonder how long they can survive. That鈥檚 bad news for the state, whose small businesses create millions of new jobs a year and lately have been responsible for 99% of net new jobs, according to .

Lost sales, staff and more

MacDonald, whose business brings in six figures a month, said she saw her 2025 sales drop by up to 50% compared with the previous year. Because of tariffs, she stopped manufacturing products in China and has shifted entirely to India. She went from 11 staff members to three. And because she spent tens of thousands of dollars on tariffs, she said she didn鈥檛 have money to bring in inventory for the holidays.

She uses brokers to import her offerings, so she鈥檚 waiting to hear from them about possible tariff refunds. But even if she does eventually receive refunds, she said the damage has been done: 鈥淭hat money could鈥檝e gone to personnel or to growth, instead of going to a tax.鈥�

The president鈥檚 policies have had a global impact. Last week, MacDonald鈥檚 longtime manufacturing partner in India informed her that costs for raw material have gone up 25%, so that will mean higher costs for new production. After increasing prices about 10% last year, she will probably have to raise them again because she is working on thin margins, she said.

The top executive at the Port of Long Beach, one of the nation鈥檚 biggest ports, recently talked about higher costs being passed on to small businesses and consumers.

鈥淔or a while, shippers absorbed rising costs from fuel spikes to last year鈥檚鈥楲iberation Day鈥� tariffs,鈥� said Noel Hacegaba, chief executive of the Port of Long Beach, during a media briefing earlier this month. 鈥淭hat鈥檚 no longer the case. Today, those costs are being passed along across the board. We鈥檙e seeing new surcharges and higher rates.鈥�

He said major shippers are , and adjusting how they move cargo. Amazon is adding a for fuel and logistics. The U.S. Postal Service is planning a temporary 8% surcharge, and UPS and FedEx also have raised their surcharges.

Hacegaba was joined by Jonathan Gold, vice president at National Retail Federation, who said the nation鈥檚 small retailers are seeing a disproportionate impact. 鈥淪mall businesses in particular don鈥檛 have the ability to absorb cost increases and typically have to pass those along to the end consumer,鈥� Gold said.

鈥榃e can only charge so much鈥�

But small retailers don鈥檛 want to drive their loyal customers away.

Rema Abedkader is feeling the squeeze all around, with higher shipping costs being the latest pain point, but she hesitates to pass along the costs to her shoppers. The designer of women鈥檚 clothing said she does not want to raise prices because it will just deter those who are still spending.

鈥淲e can only charge so much, so we鈥檙e having to eat that cost again,鈥� she said.

Abedkader, who makes her in the San Diego area but buys imported fabric from Los Angeles-based companies, said she had to cut back on production by about 30% last year, which meant fewer sales. This year, she has had to reduce production by about 50%.

Her decreased business has had a widespread effect on her local ecosystem, all of whom are small business owners themselves.

鈥淲hen I鈥檓 not producing, there鈥檚 no work for my sewer, pattern maker and cutter,鈥� she said. That causes a vicious cycle: 鈥淢y manufacturer had to get a second job, so our business had to be put on the back burner.鈥�

Abedkader said she鈥檚 working four times harder and is having to get creative with marketing and by doing wholesale locally.

鈥淚f the government doesn鈥檛 do something for small business, a lot of us are going to be going out of business very soon,鈥� she said.

Like Abedkader, women鈥檚 apparel designer and maker Jennafer Grace Carter knows fabric brokers and importers in the Los Angeles area who have shut down because of tariff costs.

The Trump administration鈥檚 immigration policies have also affected her business. Carter, who uses imported materials but makes her clothing domestically, said a lot of people were afraid to come to work. One shop that had 25 people sewing now sees less than half of them coming to work, she said, adding that the workers are 鈥渉ere legally but look a certain way鈥� so they are scared.

Her handmade has had to scale back on styles to adjust to that shift, she said.

The bottom line is that Carter is dealing with 鈥渓ess labor force, (fewer) materials and higher costs,鈥� she said. She has raised her prices only incrementally, because people won鈥檛 buy if a business changes prices too drastically, she said.

Carter recently returned to California from direct-to-consumer events in Las Vegas and Scottsdale, Ariz. The U.S.-Israeli war in Iran has not only affected her shipping costs, it has also raised her travel costs. Her customers were in the same boat. She heard some attendees talking about how 鈥渋t was so expensive to get here鈥� I wanted to shop more.鈥�

Higher costs鈥� long-term impact

The pain of higher costs seems unlikely to go away anytime soon. For one thing, the uncertainty continues.

鈥淲hether it be on shores around the world or right here at home with erratic policy, it makes it very difficult for business people to plan,鈥� said Gene Seroka, executive director of the Port of Los Angeles, during a media briefing this month.

Even those whose businesses have an opportunity to benefit from what鈥檚 going on are expressing pessimism.

鈥淚t鈥檚 going to be harder and harder for small businesses,鈥� said Ellie Rose, owner of Calibaja Manufacturing, which contracts with U.S. businesses to make their products in Mexico. Those businesses avoid import tariffs because most products made in Mexico are still governed by the United States-Mexico-Canada Agreement 鈥� although .

Rose said the small business owners she speaks with are seeing growing challenges. It鈥檚 taking a lot longer than before to get their products to the United States, she said 鈥� 100 to 165 days on a ship vs. the 30 to 60 days it used to take.

鈥淭hat鈥檚 components, finished goods, whatever you need coming from Asia,鈥� she said. 鈥淚t鈥檚 going to slow everything down and cost more.鈥�

And if or when fuel prices come back down, she doubts businesses will lower their prices because they鈥檝e had to bear increased costs for the past couple of years. That鈥檚 going to affect innovation, Rose said: 鈥淒own the line this is going to be more of a problem for everybody.鈥�

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This story was originally published by and distributed through a partnership with The Associated Press.

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