How Tariffs Can Impact Your Small Business in 2026
The past year has been a period of significant change for U.S. trade policy. A wide-ranging set of tariffs was put in place in 2025, several major court rulings have since reshaped which of those tariffs remain in effect, and a refund process is now underway for businesses that paid duties that were later struck down. If you have been trying to make sense of what is happening and what it means for your business, this article walks through it in clear, practical terms. We will cover what tariffs are and how they work, how they have affected small businesses over the past year, the legal timeline behind the 2025 tariffs, and where things stand today.
Key Events at a Glance
- February 20, 2026: The Supreme Court ruled that the broad 2025 emergency tariffs were imposed without legal authority, opening the door to roughly $166 billion in refunds for U.S. businesses.
- April 20, 2026: The government’s refund process officially opened, allowing businesses that paid tariffs in 2025 and early 2026 to begin filing claims to recover them.
- May 7, 2026: A federal court overturned a second round of replacement tariffs the administration put in place after losing at the Supreme Court. These were the 10% global tariffs that took effect in late February.
What Tariffs Are and How They Work
A tariff is a tax on goods brought into the country. When the government imposes one, the U.S. business that imports the goods pays the tax at the border, not the foreign company that produced them, a point that is often misunderstood.
From there, the cost typically moves down the chain. A U.S. importer that suddenly has to pay 10%, 25%, or more on top of the price of its goods must make a decision: absorb the cost and accept lower margins, raise prices to pass the cost to customers, switch suppliers, or pursue some combination of these. A February 2026 analysis from the Federal Reserve Bank of New York estimated that roughly 90% of the 2025 tariff burden was absorbed by U.S. businesses and consumers, rather than by foreign producers. In other words, foreign exporters generally did not lower their prices to offset the impact. The U.S. side of the supply chain was left to determine how to absorb the added cost.
A study from the Federal Reserve Bank of Dallas, published in May 2026, examined where that cost ultimately ended up within the U.S. economy. Researchers Ron Mau and Tucker Smith compared price growth across categories of goods that faced tariffs versus categories that did not, and found that prices for tariffed goods rose by roughly the full amount of the tariff. The implication is that U.S. importers did not ultimately absorb the tariff cost in their margins over the long term. Instead, they passed it through to consumers in the form of higher prices. This is what economists call “full pass-through.”
It is also worth understanding that tariffs vary widely in scope. Some apply broadly to nearly every country, and those are the ones that have been the subject of the recent court rulings. Others are narrowly targeted at specific industries, such as steel, aluminum, automobiles, or pharmaceuticals. The narrowly targeted ones generally rely on different legal authority and have not been affected by the recent decisions. When tariffs are described as having been “struck down,” it is important to be clear that only certain ones were. Many remain in full effect.
How Tariffs Affect a Small Business
The impact of tariffs on a small business typically appears in four ways. Most of our clients have experienced at least one of them over the past year, and many have experienced all four. Notably, the impact applies whether your business imports goods directly or simply purchases from U.S. suppliers who do, because the cost of tariffs flows through the supply chain in either case.
Higher cost of goods.
If your business imports products, materials, or parts, tariffs raise your landed cost directly. For a business importing $500,000 of goods at a 15% tariff rate, that represents $75,000 in unplanned annual expenses, often falling directly to the bottom line because it cannot all be passed through. Some businesses have responded by reducing order volumes, others by switching to higher-priced domestic suppliers, and others by absorbing the additional cost. None of these responses are simple, particularly for businesses operating on tight margins. If you do not import directly, the same cost pressure likely reached you through your U.S. distributors and manufacturers, often embedded in supplier price increases without being broken out explicitly on invoices.
Pressure to raise prices.
When costs increase and margins are already compressed, raising prices is often the only realistic response. This is a difficult conversation to have with customers, particularly long-standing ones who may not understand the reasons behind the change. Many small business owners have told us they delayed price increases as long as possible, hoping the tariff situation would resolve. For some, that delay resulted in several months of compressed margins before they ultimately had to act.
Supply chain disruption.
Tariffs alter the economics of sourcing decisions. A supplier in China that was the right choice in 2024 may no longer be, and identifying a new supplier in a country with lower tariff exposure takes time. Lead times change, quality must be re-verified, contracts must be renegotiated, and inventory must be carefully managed during the transition. Businesses that built reliable supply chains over years have suddenly had to rebuild them under significant time pressure.
Retaliatory tariffs on exports.
When the U.S. imposes tariffs on other countries, those countries often respond with tariffs of their own. In 2025, China imposed retaliatory duties on a wide range of U.S. agricultural products, and Canada imposed retaliatory tariffs on approximately $30 billion of U.S. goods. Most of these retaliatory tariffs have since been lifted. Canada removed most of its counter-tariffs effective September 2025, and China suspended its retaliatory duties in November 2025 as part of a broader trade agreement. Some retaliatory tariffs remain in place in narrower categories such as steel, aluminum, and automotive products. For U.S. small businesses that sell internationally, the disruption from this period was real even though much of it has now been unwound.
2025 to 2026 Tariffs
The 2025 tariffs have followed an unusually compressed timeline. Within roughly thirteen months, they were imposed, challenged in court, struck down by the Supreme Court, replaced, and then partially struck down a second time, with a refund process now underway. The dated subsections below walk through each of those events.
April 2, 2025: The Tariffs Are Imposed
On April 2, 2025, the administration announced sweeping new tariffs on imports from most of the country’s trading partners, citing emergency economic powers as the legal basis. Rates began at 10%, climbed to 15% in some cases, and rose even higher on specific countries such as China, pushing the effective U.S. tariff rate to its highest level in nearly a century. If your business purchased anything that originated overseas, you felt the effect.
The legal authority the administration cited was the International Emergency Economic Powers Act (IEEPA), a 1977 Cold War-era statute passed to give presidents tools to respond to genuine national emergencies. Almost immediately after the tariffs took effect, small businesses and trade groups filed lawsuits arguing that ordinary trade policy does not qualify as an emergency, and that using IEEPA in this manner bypassed Congress’s constitutional authority over taxes. Those legal challenges set up the chain of court rulings that followed.
February 20, 2026: The Supreme Court Rules
On February 20, 2026, the Supreme Court ruled 6-3 in favor of the businesses that had sued. The Court found that IEEPA, despite its broad language, did not authorize the President to impose tariffs on this scale, and that an emergency powers law cannot be stretched to bypass Congress’s authority when no genuine emergency exists. The ruling did not strike down every tariff in place, only those imposed under IEEPA, but it also established the government’s obligation to refund the duties that had been collected improperly.
Within hours of the ruling, the administration announced a replacement: a 10% global tariff under Section 122 of the Trade Act, a different legal authority that allows temporary tariffs for up to 150 days. These replacement tariffs took effect on February 24, just four days after the Court’s decision.
April 20, 2026: The Refund Process Opens
Two months later, on April 20, 2026, the government’s refund process officially opened. The total amount owed back is substantial: roughly $166 billion, spread across more than 330,000 importers and over 53 million individual shipments. The volume of activity since the opening reflects how quickly businesses are pursuing claims. By the end of April, more than 75,000 refund claims had been submitted, covering over 11 million import entries.
Refunds are not automatic. Each affected business must file a claim through a specialized federal customs portal, typically with the assistance of a customs broker. The eligibility rules are technical, and refunds are being processed in phases, with some categories of imports queued for later rounds. Once a claim is accepted, payments are typically arriving within 60 to 90 days.
May 7, 2026: A Second Round Struck Down
The replacement tariffs the administration imposed in late February were also short-lived. On May 7, 2026, the U.S. Court of International Trade ruled 2-1 against them, finding that the Trade Act provisions cited did not authorize a tariff of this kind. The administration is expected to appeal that ruling, which could return the case to the Supreme Court.
In the meantime, the administration is pursuing other legal authorities to reimpose tariffs through different routes. Several trade investigations under Section 301 of the Trade Act are scheduled to conclude in July, which could result in a new round of tariffs targeted at specific countries or industries. The legal proceedings are likely to continue.
Tariffs Still in Effect
It is worth being clear about which tariffs remain in place. Duties on steel, aluminum, automobiles, and certain pharmaceuticals were imposed under entirely different laws (Section 232 and Section 301), neither of which has been affected by the recent rulings. For businesses dealing in those affected categories, the tariff situation is essentially unchanged.
What Small Business Owners Can Do
There is no single approach that fits every business, because every business is affected differently. However, a few general principles apply to most situations.
The most useful first step is understanding your exposure. If your business imports goods, compile your records from 2025 and 2026 so you have a clear picture of what you paid in duties. If you do not import directly but purchase from U.S. suppliers, your costs almost certainly increased over the past year as tariff-driven increases were passed through to you. Now that some tariffs have been struck down, ask your key suppliers whether they expect any price reductions and on what timeline. Suppliers do not always pass savings back to customers as quickly as they pass costs forward, so those conversations may identify opportunities that would not surface otherwise.
Beyond that, the standard approach to navigating cost pressure still applies. Review your pricing carefully, and do not hesitate to revisit it now that the cost picture is changing. Communicate openly with customers about any changes. Most customers understand price changes when the reason is explained clearly. Look for opportunities to streamline operations and reduce overhead, since margin improvement helps regardless of how tariffs may evolve next. Evaluate whether your supply chain could be more flexible, including identifying backup suppliers in different countries so you are less exposed if tariffs shift again.
The financial side of the tariff situation also deserves attention. Compile clean documentation of any tariff payments made in 2025 and 2026, since that record supports both refund-related work and the tax planning that follows. If you expect a meaningful refund, the timing and tax implications are worth discussing with your accountant before the funds arrive. And a mid-year tax check-in is generally worthwhile when there have been significant cost changes in the business, since adjusting estimated payments before year-end is easier than handling surprises in April.
What We Are Watching Next
The tariff matter remains unresolved. Several developments are worth monitoring over the coming months. The administration is pursuing additional legal authorities to impose new tariffs, with trade investigations expected to conclude in July. The Tariff Refund Act of 2026 is making its way through Congress and could meaningfully accelerate the refund timeline for small businesses if it passes. Appeals of the recent court rulings could return the issue to the Supreme Court. And the broader trade environment, including the status of trade agreements with major partners, remains in flux.
We will continue to track these developments and keep you informed as significant changes occur.
How We Can Help
We recommend that importers work directly with their customs brokers for filing tariff refund claims and navigating the CBP refund process. Customs brokers are well-positioned to support the technical and procedural aspects of refund submissions.
Our firm can help with the accounting and tax issues connected to tariff refunds and the broader tariff environment, including bookkeeping treatment of any refunds received, tax planning, cash flow forecasting, sales tax implications, and pricing and supplier decisions.
