Here’s what the Trump presidency means for small businesses

With Donald Trump taking the White House in January 2025, many of the president-elect’s supporters hope he will bring a better economy, cut taxes and slash regulations for businesses in the United States.

Trump is promising to implement the stances he put forth on the campaign trail, from tariffs on foreign trade to freeing up the American labor pool with mass deportations. While Trump’s previous presidency has been regarded as a mixed bag by many, proponents of the 2025 administration are promising a new approach when Trump takes office.

Here’s the impact that small business could see from Trump’s second term.

Tariffs

One of Trump’s most forefront policies has been to push high tariffs on foreign trade, with the aim to draw the manufacturing industry back to the United States, reduce dependence on foreign goods and materials and bolster the domestic economy.

Tariffs act as a federal tax on foreign imports, requiring the purchaser of the tariffed goods to pay a fee to the government based on the products’ value.

Because of the increased cost of importing, tariffs can act as a negative incentive for companies to rely on domestic goods instead of imports. With this, Trump aims to draw manufacturing back to the United States and revitalize areas that have seen manufacturing labor sent overseas.

The president-elect has targeted American manufacturers for moving their production out of the United States, threatening John Deere with 200 percent tariffs for potentially moving their factories to Mexico.

“It’s hurting our farmers. It’s hurting our manufacturing. And if you do that, you’re going to have a 200 percent tariff put on the product that you make in Mexico, right across the border,” Trump said at a September 2024 roundtable in Pennsylvania.

While tariffs have the potential to move manufacturing and production back home, there is a downside.

“This is broadly seen as a huge potential negative for the U.S. economy, many businesses and consumers,” Mark Hamrick, senior economic analyst for Bankrate, said earlier this year. “Tariffs can only be effective if there is production capacity in the U.S. to provide competition for the otherwise imported products that are targeted. In the U.S., small businesses reliant on affected imports would be hamstrung, as would their customers who could struggle to pay for the things they want and need.”

For small businesses, this can have a ripple effect. Less expensive imports may see an increase in price, increasing businesses’ overhead, which can impact everything from construction to equipment – in turn, possibly increasing prices for the consumer.

On the upside, if tariffs have the intended effect of moving manufacturing back to the United States, it may open up the labor pool and increase wages for American workers, bolstering the economy and giving consumers more money to spend.

More reliance on domestic products can also shorten the supply chain, acting as insurance against global issues that may snarl international trade.

“It would be a mistake not to take Trump at his word regarding the threat of tariffs both on goods made in China and elsewhere around the world,” Hamrick added. “As with the earlier iteration of this in the first administration, one can imagine that exceptions will be carved out, but that is very uncertain. The challenge is that there is not sufficient capacity currently in the U.S. to fill the gap with all of the things we bring in from around the world, despite the ambitions of restoring U.S. manufacturing. For-profit, shareholder driven entities are not going to absorb all of the added costs. So, consumers and businesses would end up paying for these taxes on imports.”

Trump’s Secretary of Commerce pick

Trump has tapped Wall Street mogul Howard Lutnick as his Commerce Secretary, who promises to fulfill many of Trump’s campaign-trail promises of increased tariffs and lower income taxes.

“Use tariffs to build in America,” Lutnick said in a CNBC interview in October. “If we want to make it in America, tariff it, or if we’re competing, tariff it. We need to protect the American worker.”

Lutnick has supported the idea of strategic tariffs by implementing tariffs on goods and materials that can be produced in the United States, with the aim of driving manufacturing back to the United States instead of relying on imports.

He also is a proponent of using tariffs as a negotiating tactic, with the claim that high tariffs on other countries will force them to come to the bargaining table and lower their own tariffs on the United States, creating a more balanced import and export exchange.

While Lutnick is pushing the tariff issue, his experience in the business world as head of financial services and brokerage firm Cantor Fitzgerald, L.P. may lend much-needed experience to the position.

“We understand that he’s a supporter of tariffs with the goal of boosting U.S. firms facing foreign competition while pressing for trade agreements, lower corporate taxes and boosting U.S. energy production,” Hamrick says. “An increasing part of the department’s mission has been enforcing export controls on technology, including products such as semiconductors seen related to national security.”

Mass deportations

Trump has promised to begin deportation on day one of his presidency, with claims that he will use the military to remove undocumented immigrants from the United States.

The president-elect and the vice president elect J.D. Vance have both claimed that undocumented immigrants have contributed to increasing crime rates, the housing shortage and suppressed wages and jobs for American workers.

“We cannot have an entire American business community that is giving up on American workers and then importing millions of illegal laborers,” vice president-elect J.D. Vance argued in an October 2024 interview with The New York Times. “It’s one of the biggest reasons why we have millions of people who’ve dropped out of the labor force. Why try to re-engage an American citizen in a good job if you can just import somebody from Central America who’s going to work under the table for poverty wages?”

By deporting undocumented immigrants, Trump and Vance claim Americans will be able to fill the job vacancies left behind, providing an entryway for unskilled workers and building a ramp into the middle class.

To what extent Trump will be able to enact his plan remains to be seen. It’s estimated that mass deportation will cost the government $88 billion, requiring the budgetary cooperation of Congress.

As of 2022, there have been an estimated 8.3 million undocumented immigrants in the United States. According to Pew Research, this makes up about 4.8 percent of the American workforce. As such, the United States economy and small businesses would feel a major impact if Trump carries out his mass deportation process.

Many economists warn that deportations will have a negative impact on industries whose labor pool depends on immigrant labor, including construction, agriculture, food service and caregiving.

Businesses could face labor shortages, reducing their ability to operate and be productive. The housing shortage may be worsened due to lack of workers, increasing housing and leasing costs. American workers who depend on caregiving services – such as daycare and elderly care – could also be prevented from working.

With several million fewer people participating in the economy, businesses as a whole could see reduced demand for goods and services.

“Widespread deportations as threatened could be disastrous at a number of levels, negatively impacting consumers, some of whom are immigrants, and the workforce which is dependent upon them as well,” Harick said earlier this year.. “One of the reasons that the United States job market has been able to normalize over the past couple of years has been because of immigration, leading to the recent situation where the number of job openings relative to unemployed is about 1.1 to 1, down from the days of the red hot job market when the ratio was 2 to 1.”

Cutting taxes

Trump has promised to slash taxes on multiple fronts, with claims that he will eliminate taxes on tips, overtime and even the federal income tax. This is in addition to promises for business tax cuts similar to the one implemented in 2017, which will lower taxes for corporations.

While changes to the tax code typically take time to implement, a Republican majority in both the House of Representatives and the Senate may allow the Trump/Vance administration to pass new code quickly.

“If there’s one legislative priority of the incoming administration, helped by support of the GOP majority in both the House and Senate, it is a continuation of the 2017 tax cut,” Hamrick says. “Republicans have billed a failure to act as akin to a multitrillion dollar tax hike. But with tax law changes, perhaps more than most realms, the devil is truly in the details.”

While cutting taxes can mean more money in consumers’ pockets, Trump’s program also poses potential consequences to the government’s budget.

“It is a bit reminiscent of the Oprah program where she famously declared, “you get a car, and you get a car…” only this time it is about cutting taxes despite the very serious implications related to inflaming the federal debt and deficits,” Hamrick says.

Cutting taxes for American-operated businesses

Trump’s promise to slash the corporate tax rate from 21 percent to 15 percent has a key condition to it: only American-based businesses with American-based labor can take advantage. Businesses that offshore and outsource their labor will have to pay the full tax, Trump has claimed.

With this, Trump intends to increase American participation in the workforce, putting more money into the domestic economy and strengthening the middle class. Trump also claims the incentive will encourage businesses to hire more American workers and pull up wages, instead of undercutting pay with overseas workers willing to work for less.

The policy, however, could have downsides. Businesses that rely on offshore labor will have a heavier tax burden, possibly driving prices up. It could also possibly create a tighter labor market, possibly creating a labor shortage.

Trump’s no tax on tips plan

Trump’s promise to eliminate taxes on tips can have a broad impact on businesses that rely on tipped workers – in particular, the restaurant and service industries.

Tips are defined by the IRS as additional and discretionary payments an employee receives directly from a customer, such as a tip on an electronic payment suite, cash left at a restaurant table or a substantial gift included as a bonus to the service fee.

For many workers, such as servers and entertainers, tips make up most of the bulk of their pay, heavily supplementing or replacing their base wage. As such, the IRS counts tips as income, subject to federal and state taxes.

Eliminating taxes from tips could be a welcome financial reprieve for workers, reducing wage pressure for businesses and possibly making recruiting tipped workers easier.

However, eliminating taxes on tips could have unintended consequences.

“The percentage of workers who would be covered by this proposal is relatively small,” Hamrick said earlier this year. “It could compel some businesses to try to implement tipping as a way to shift the burden of wage costs. But this also could lead consumers, already weary of being asked to tip at locations such as fast casual food and coffee shops, to only become more resistant.”

Trump’s no tax on overtime plan

Trump has additionally promised to eliminate taxes on overtime income.

Overtime, which is classified as hours worked over the standard 40-hour workweek for hourly full-time workers, requires a minimum of time-and-a-half pay per hour.

Like eliminating taxes on tips, cutting taxes on overtime may make recruiting hourly workers easier for businesses – especially if long hours are part of the job description. However, it could provide the wrong incentive for businesses and workers.

“It would be negative, however, if workers and businesses felt compelled to work more or longer hours when many might already feel overworked,” Hamrick said earlier this year.

Trump’s no federal income tax plan

Trump has also floated the idea of completely replacing federal income taxes with tariffs. The viability of this approach has been debated among economists and tax experts.

The upside of this, if implemented, would give Americans more take-home pay, putting money into the economy and reducing wage pressure for businesses.

With individual income tax making up 51 percent of federal revenue, implementing this rule would have a major impact on the government’s budget. Besides resistance from even a Republican-controlled legislative branch, the federal government may have to raise capital from other avenues – be it tariffs, or other fees and taxes, which could increase the cost of goods and services for businesses.

Cutting Biden-era regulations

Included among Trump’s score of cabinet picks have been billionaire technology maverick Elon Musk and entrepreneur Vivek Ramaswamy, both named as heads of the Department of Government Efficiency (DOGE).

Both have announced plans to slash both government spending and regulations, with the aim of reducing so-called wasteful spending and needless business regulations.

“The entrenched and ever-growing bureaucracy represents an existential threat to our republic, and politicians have abetted it for too long,” Musk and Ramaswamy wrote in an opinion piece for the Wall Street Journal in November. “ The two of us will advise DOGE at every step to pursue three major kinds of reform: regulatory rescissions, administrative reductions and cost savings.”

The pair have promised to take aim at regulations by the Environmental Protection Agency, the Securities and Exchange Commission and others.

While Musk and Ramaswamy have promised that cutting regulations will free up businesses to grow and innovate, it may create more chaos than is healthy for the current business environment – and may not provide much benefit to small businesses.

“My sense is that one of the more likely outcomes is that the administration will be agreeable to mergers and acquisitions where the Biden administration has made enforcing antitrust a priority,” Hamrick said. “ One unintended consequence could be that big business, generally speaking, gets bigger. That could be less than optimal for small businesses, which are the lifeblood of innovation and U.S. economic growth.”

Lowering inflation

With inflation being the number one concern for small businesses, according to an August 2024 survey by the National Federation of Independent Business, Trump’s promise to tackle prices left high by surges of inflation from the past three years has been a major draw for his proponents.

Trump’s main tool in his arsenal will be lower energy prices, which the president-elect claims will lower prices for consumers and drive down operating and product costs for businesses.

“We will drill, baby, drill, and by doing that we will lead to a large-scale decline in prices,” Trump said at the Republican National Convention in July.

Trump promises that by increasing domestic production of energy, the United States will have more control over the price of fuel, lowering energy costs and reducing America’s reliance on foreign energy. This, in turn, will drive down the cost of manufacturing, transportation, operating costs and other energy-dependent points that contribute to the cost of goods and services.

While energy prices have been one of the driving factors behind inflation, the president’s power over prices isn’t as simple as it may seem.

“Oil and energy prices are among the most complicated in all of the U.S. economy,” Sarah Foster, principal U.S. economy and Federal Reserve reporter for Bankrate, said earlier this year. “For starters, they’re volatile, and they’re based on a whole number of factors — namely, supply and demand and global production. Those have a lot more to do with than just who sits in the White House: wars, demand for energy and even weather can all influence the amount of supply on the market.”