Tariffs on Trial: Why Small Businesses Are Losing and Investors Should Take Note

The U.S. court system’s refusal to strike down Trump-era tariffs has left small businesses in the crosshairs of a trade war that’s already costing jobs, stifling innovation, and reshaping investment opportunities. As legal battles rage over the constitutional limits of presidential power, investors must ask: Who wins and who loses in this high-stakes standoff? Let’s break it down.

The Legal Standoff: Tariffs Stay—For Now

Courts have yet to invalidate the sweeping tariffs imposed under the International Emergency Economic Powers Act (IEEPA), despite lawsuits from small businesses, states like California, and conservative groups. The administration claims these tariffs—up to 145% on Chinese goods and 25% on Canadian/Mexican imports—are justified to “protect national security.” Critics argue this stretches the law’s purpose beyond recognition, as IEEPA was meant for sanctions, not trade wars.

The key sticking point? The major questions doctrine. Courts typically demand clear congressional approval for economically disruptive actions. But judges are hesitating to rein in the executive branch on foreign policy—leaving tariffs intact. The Tax Foundation estimates these tariffs will shrink U.S. GDP by 1% annually, costing nearly 800,000 jobs and $180 billion in economic activity.

The Sectors Getting Crushed—and Why Investors Should Care

Small businesses with thin margins are the first to feel the pain. Let’s look at four sectors on the brink and their investment implications:

1. Promotional Products

Sales for distributors and suppliers dropped 3.6–4.8% in early 2025—the worst since 2021. The $800 “de minimis” tariff exemption for small shipments from China vanished in May, making imports of branded merchandise like lapel pins or event tents prohibitively expensive.

Investment Play: Avoid these names—they’re losing sales and scrambling to source domestically, which is often impossible.

2. Baby Goods and Specialty Manufacturing

Companies like Busy Baby (not publicly traded but emblematic of the crisis) face $229,000 tariff surcharges on $158,000 orders from China. Founders are crowdfunding to survive, while retailers like Walmart demand contracts based on pre-tariff pricing.

Investment Play: Look to domestic suppliers like Graco (GGG) or Evenflo (private), which may benefit if tariffs force U.S. production shifts—though infrastructure gaps make this risky.

3. Home Goods and Handcrafted Items

Businesses like Melanie Abrantes Designs, which sources cork from Portugal and tools from Japan, now face 50–145% tariffs on inputs. The 90-day tariff pause in early 2025 provided no real relief—prices for materials have already risen.

Investment Play: MHG is down 18% YTD—avoid unless you see a bottom. Focus instead on companies insulated from tariffs, like Wayfair (W) or Amazon (AMZN), which can absorb costs better.

4. Self-Care and Niche Markets

Purryfuls, a startup making stress-relief plushies, faces tariffs that could double production costs. Founder Katharine Burke says tariffs make her $1,000-unit launch “unworkable.”

Investment Play: HEAL is down 30%—a sign investors are fleeing this sector. Stick to defensive stocks like Johnson & Johnson (JNJ).

The Geopolitical Wild Card: Retaliation and Recession Risks

Foreign counter-tariffs aren’t just theoretical. China’s 125–145% levies on U.S. exports have hit farmers and manufacturers hard. Meanwhile, the U.S. Chamber of Commerce’s silence has left small businesses alone in the fight—a red flag for investors.

Cramer’s Bottom Line: Flee the Fragile, Bet on the Bulletproof

The courts may yet invalidate these tariffs, but until then, small businesses in tariff-hit sectors are canaries in the coal mine for a broader economic slowdown. Investors should:
1. Avoid sectors reliant on imports (promotional goods, baby products).
2. Buy defensive giants like Amazon (AMZN) or Home Depot (HD), which can pass costs to consumers.
3. Hedge with gold (GLD) or Treasuries if recession fears rise.

The Tax Foundation’s data is clear: tariffs are a $180 billion annual drain on the U.S. economy. Until Congress acts or courts strike these tariffs down, this is no time to be a hero in vulnerable industries.

Final Call: Sell the losers, buy the survivors, and keep one eye on the courts—they’ll decide the next chapter.