A majority of small businesses in the goods and retail sectors faced financial challenges from tariffs in 2025, with 55 percent of national goods firms and 67 percent of retail firms reporting tariff-related cost pressures, according to a Federal Reserve Bank of New York study published July 9. The research, based on the 2025 Small Business Credit Survey, found that about 80 percent of affected firms passed at least some of these higher costs on to customers. Regional firms in New York, New Jersey, and Connecticut experienced even greater pressure, with 62 percent of goods firms and 72 percent of retail firms reporting tariff challenges.
The survey revealed that small businesses depend heavily on imported inputs even though few sell internationally. Nationally, about 70 percent of goods firms and 80 percent of retail firms used at least some inputs sourced from outside the U.S. in 2024, while only 30 percent of goods firms and 20 percent of retail firms reported international sales that year. Regional surveys indicated 90 percent of manufacturers and 75 percent of services firms import some goods. About 80 percent of firms nationally reported that their imported input prices increased in 2025 compared to 2024. In response to these higher costs, roughly 80 percent of goods and retail firms passed on at least some expenses to customers, while about 60 percent absorbed at least some costs internally. Nationally, 36 percent of goods firms and 43 percent of retail firms combined both approaches.
The report finds that firms correctly identified tariff-related challenges rather than simply conflating them with general inflation. Regression results show that reporting tariff-related challenges has a high and statistically significant association with experiencing higher prices of inputs sourced outside the U.S., while reporting broad inflation challenges does not. Authors Will Aarons and Asani Sarkar note that older and more profitable small firms were more inclined to pass on costs and less inclined to absorb them, likely because these firms have greater pricing power. The researchers also found that firms reporting tariff-related challenges were less likely to expect increased revenues or employment in 2026, even after accounting for firm characteristics like age, revenues, profitability, and location.
The report's analysis suggests small businesses face a particularly difficult position because input tariffs have been shown to have larger effects on productivity than output tariffs. Unlike large firms, which can mitigate higher input prices through legal means and maintain price markups more easily, smaller and less profitable firms have fewer resources to absorb cost increases. This vulnerability matters because while the largest 1 percent of U.S. firms account for 90 percent of international trade by value, the majority of exporting firms are small. The findings align with other research showing that mid-sized firms with 50 to 499 employees paid sharply higher tariffs in 2025. By a large margin, small businesses expect their export sales to decrease rather than increase in 2026, signaling continued pessimism about their near-term prospects.