Written by Adele Flores-Noel
When the U.S. economy is discussed, the focus often falls on Fortune 500 companies and other well-known, prestigious firms. However, concentrating solely on large corporations would be a mistake, as small businesses have long been considered the backbone of the U.S. economy. The Small Business Administration (SBA) defines a small business as any enterprise with fewer than 500 employees (USA Facts, 2024). Importantly, 99.9% of all businesses are small businesses. As of July 2024, there were an estimated 34.8 million small businesses, compared to just 19,688 larger businesses in the U.S. Moreover, small businesses employ nearly half of the private-sector workforce—about 45.9%—and have accounted for 61.1% of job growth since 1995. As of 2014, they also contributed 43.5% of U.S. economic activity. Their role in the economy has only expanded since then, particularly in post-COVID America, where small businesses have experienced significant growth (U.S. Department of the Treasury, 2024).
Given their importance to the economy, many economists view small businesses as key indicators of economic health. Since they are highly sensitive to macroeconomic shifts, they can serve as leading indicators (Politico, 2025). Therefore, when Trump signed an executive order on the second of April of this year imposing a minimum ten percent tariff on all U.S. imports—along with higher tariffs on 57 designated countries (University of Pennsylvania Wharton, 2025)—it was unsurprising that small businesses pushed back. The general tariff rate was enacted on the fifth of April, while higher tariffs on specific countries were implemented, then reversed or postponed, on the ninth of April—with the exception of a 145 percent tariff on Chinese exports, which remained in place (New York Times, 2025).
In his speeches, Trump has emphasized that his tariff policy is a protectionist measure aimed at promoting U.S. manufacturing (NerdWallet, 2024). He has repeatedly highlighted support for companies that are “Made in America,” claiming they would benefit from the tariffs. Additionally, he has expanded tax cuts for small businesses and pursued deregulation efforts to reduce compliance costs and regulatory burdens.
Importantly, Trump’s administration is not the only group that believes these changes will spur economic growth and support small businesses. According to Forbes, the SBA’s initiatives are expected to improve access to capital, increase opportunities for both public and private investment in American manufacturing, and help small businesses export their products on a larger scale (Arora, 2025). As part of its deregulation agenda, the SBA—headed by Loeffler—plans to reduce barriers to accessing 504 loan programs, which provide funding for real estate, construction, and equipment purchases. Additionally, it will expand the use of the 7(a) Working Capital Pilot Program, which finances inventory purchases and export-related expenses.
According to a Goldman Sachs study, these initiatives have the potential to significantly benefit small businesses, especially since a majority of small business owners report being constrained by regulatory red tape (Goldman Sachs, 2025). The same study revealed that owners believe the federal government should tailor its programs more effectively and prioritize issues such as inflation, healthcare, retirement and paid leave benefits, and tax reform (Forbes, 2025). All of these are areas the Trump administration has publicly stated it will prioritize, leading some to believe that these SBA initiatives could signal a successful future for small businesses—despite the challenges posed by the new tariff policy.
However, despite these optimistic projections, many remain concerned about Trump’s economic plans. For example, the Russell 2000 Index, which tracks shares of small-cap companies, has declined by more than 20% since briefly peaking after Trump’s election (Politico, 2025). In addition, the Chamber of Commerce and MetLife’s quarterly confidence index among small businesses dipped in the first quarter of 2025, and a survey conducted by the Federal Reserve Bank found that since 2021, small businesses have reported a decrease in revenue.
While these are only warning signs, Wall Street economists worry that retaliatory tariffs from other countries could lead to higher inflation, weakened consumer demand, and stagflation (Politico, 2025). As cited in Politico, University of Chicago economics professor Ufuk Akcigit described small businesses as the “canary in the coal mine,” explaining that they are often the first to feel the effects when the economy takes a turn. Small businesses, lacking the flexibility of large corporations and being slower to pivot when supply chains shift, may be especially vulnerable to absorbing the costs of inventory orders and higher input prices due to their limited procurement options. Moreover, despite Trump’s efforts to reduce red tape, some scholars have argued that his freeze on grants and the 43% cut to the SBA workforce will undermine essential infrastructure and support for small businesses.
Therefore, while Trump has emphasized deregulation and support for small businesses, recent surveys and indices suggest growing concern and uncertainty about the future. Many small businesses are holding off on expansion due to inflation and, now, increasing worries over the new tariff policy (U.S. Chamber of Commerce, 2025).
References
Arora, R. (2025, March 31). 3 Ways Trump’s SBA Initiatives Can Help Small Businesses. Forbes. https://www.forbes.com/sites/rohitarora/2025/03/31/three-ways-trumps-sba-initiatives-will-boost-small-businesses/.
Brady, R. (2024, November 19). What Trump’s Win Means for Small Businesses. NerdWallet. https://www.nerdwallet.com/article/small-business/trump-small-business.
Minsberg, T. (2025, March 13). A Timeline of Trump’s On-Again, Off-Again Tariffs. NY Times. https://www.nytimes.com/2025/03/13/business/economy/trump-tariff-timeline.html.
Reuters. (2025). US President Donald Trump holds a signed executive order during an event to announce new tariffs, in the Rose Garden of the White House on Wednesday [AP pic]. Free Malaysia Today. https://www.freemalaysiatoday.com/category/highlight/2025/04/03/trump-announces-minimum-10-tariff-on-all-imports.
Sutton, S. (2025, April 3). “Canary in the coal mine”: Small business troubles are a warning sign for Trump. Politico. https://www.politico.com/news/2025/04/03/tariffs-small-business-trade-inflation-economy-00266777.
Swanek, T. (2025, March 27). Small Business Index Falters as Inflation Concerns Reach Record High. U.S. Chamber of Commerce. https://www.uschamber.com/small-business/small-businesses-index-falters-as-inflation-concerns-reach-record-high.
Van Nostrand, E. (2024, September 3). Small Business and Entrepreneurship in the Post-COVID Expansion. U.S. Department of the Treasury. https://home.treasury.gov/news/featured-stories/small-business-and-entrepreneurship-in-the-post-covid-expansion.
(2024, November 22). What role do small businesses play in the US economy? USAFacts. https://usafacts.org/articles/what-role-do-small-businesses-play-in-the-economy/.
(2025, March 6). Small Business Owners Optimistic for 2025, but Urge Washington to Act on Key Challenges. Goldman Sachs. https://www.goldmansachs.com/community-impact/10000-small-businesses-voices/insights/small-business-owners-optimistic-for-2025-but-urge-washington-to-act-on-key-challenges.