Tariffs Spark Survival and Entrepreneurial Mode For Small Businesses and Lenders

Paul Yeager: Let's talk tariffs and the realities of are there rebates coming. Are there refunds from the Supreme Court ruling. Who is benefiting? Who's recalibrating, who's adjusting and who is struggling in this current tax climate? We're going to talk with Ben Johnston. He's the CEO of a company that loans money to businesses, mostly small businesses. So we're going to get their perspective on what the small business is doing. We'll also talk about the larger ones, but the borrowing costs, what is impacting those lenders. How are the smaller ones maybe a little more nimble than the larger companies right now when it comes to these tariffs and navigating the current political climate and environment that is out there, we're also going to talk. We'll get to the Smoot Holly act. We've talked about that on the market to market show before. But we'll talk about those that have become flexible and creative and just kind of get into all things tariffs today. My name is Paul Yeager. This is the MToM podcast, a production of Iowa PBS and the Market to market TV show. New episodes come out each and every Tuesday. If you have feedback for me, send it in an email to Paul.Yeager@IowaPBS.org. So now let's talk tariffs. But first we have to start, as I always do, with some obscure thing. And today it's of course, sports. There's a new way to stay connected and know what's happening with market to market. When you subscribe to Market Insider, one email and a lot of information awaits you. Go to markettomarket.org and subscribe to Market Insider. Yeager: Connecticut is one of those places that is between some great cities, but it's pretty darn special. But what at least in women's basketball country. We're very familiar with Connecticut and men's basketball too. Do you ever get caught up in any of that March craziness?

Ben Johnston: I've been caught up over the last few days. I have to admit, my son and I did a bracket together, and we're eagerly anticipating, the outcome of the sweet 16 that's coming up there.

Yeager: Well, I'm going to, go ahead and apologize, probably for what the Iowa Hawkeyes did to whatever brackets that you had knocking out the number one seed. I know I did it to myself, but by the time this airs, we'll know who the Final Four is. So it's all fun. It's just kind of good banter to have.

Johnston: Absolutely. Well, I'm, I'm actually, despite being a Connecticut resident, a, a fan of sports from the state of Michigan. So, both Iowa and Michigan and the Big Ten in general have done really well this year.

Yeager: Yeah. And I saw that your graduate work, came from the land of Michigan there. And it's kind of in the heart of the country. But let's talk tariffs, if we could, from the heart of the country's perspective. First, is how would you define tariffs right now in the United States, as we sit here at the end of March 2026.

Johnston: I would say unsettled and in flux, I think that small businesses have been trying to figure out what tariff policy is and will be in the future for over a year now and, we just had a big Supreme Court ruling in February, which, may have given some certainty toward the future, but in reality, probably made things even more unsettled. I think small businesses in general had been settling into the new normal, in the fall and winter. And then the Supreme Court decision came in and, really threw into question, what are those tariffs going to be in the future? Might I be able to get a refund on some of the tariffs that I may have paid in the past? And, you know, really creates even more uncertainty as to where people want to be. Placing their supply chains in the future and raising questions about whether they might want to manufacture more of those goods in the United States.

Yeager: Right. Well, and.

Johnston: Abroad.

Yeager: And I know that that question's extremely broad, but I kind of needed that to lay that out, because there's about six offshoots of that that we could go into. Let's start with the instability, uncertainty side of things from a lending perspective, which I guess let's first just tell me what your company does and what your role is with them.

Johnston: Sure. I am the chief operating officer at capital. Capital is a small business lender, and we provide financing in the form of loans, factoring products, lines of credit, and equipment finance. We generally try to make credit decisions in under two hours and hope to be able to fund within 24 hours. Been around for 20 years. And we work with small businesses in all 50 states.

Yeager: So given that, umbrella and uncertainty in tariffs, how hard does it make your job in your company's job to to help those small businesses?

Johnston: Yeah. I mean, we're always trying to see around the corner and understand what the needs of small businesses are and where the future of the economy is. But in reality, small businesses are some of the most flexible and creative. Groups of people in the country. And they are always finding opportunity, even in challenging economic times. And so we have seen consistently growing demand for capital from small businesses through our throughout our 20 years of existence. And so no matter what the state of the economy, there's a, there's always an opportunity for us to be able to step up and help small businesses grow.

Yeager: And when you've been saying small business, I guess, how small are we talking here? Are we talking 2 to 5 employees all the way up to like 100? Is that how you define it as small?

Johnston: Absolutely. We also look at revenue. So anywhere from maybe half $1 million in annual revenue, up to 20, $25 million, we can go larger than that. It just tends to be more in that sweet spot. Of half a million to, to 20, 25 million. But, we can lend as small as $10,000, and we can lend to all the way up to a couple of million dollars, if that's what's needed. For our small business customer base.

Yeager: Do you have any clients that have used lending to pay tariffs or get through a certain time before they can recalibrate?

Johnston: Absolutely. I think they use, money, to fund all kinds of different business activities. We've also seen a number of businesses come to us and say, tariffs are going to be imposed on goods that we import in the future. And we have an opportunity to buy these goods, before those tariffs go into place or potentially at a discount, as suppliers are trying to unload as much as they possibly can right now. So we're looking for capital to help us. Frontload. Some of those purchases.

Yeager: I guess I should lay this out, too, in the beginning, when I do these big general questions, who pays the tariffs?

Johnston: Well, that's a that's a political hot potato there. But if you, trust the New York Fed and a report that they put out, last fall, they would say that somewhere between 86 and 94% of all tariffs paid between January and November of last year, were paid by either the importing company or ultimately, the American consumer who consumed those products. They found that actually a relatively small amount of the tariffs were actually, were actually paid for by the company overseas that was selling the product, into the United States. And then it's somewhat of an open question as to how much the importer actually passed on to the consumer. And how much margin reduction they were willing to take. But I've seen estimates that say, you know, at least 60 to 70% of that probably ultimately gets passed on to, to the consumer.

Yeager: Say that number, say that number again right there. I, I missed that number.

Johnston: I would the, the estimate, some of the estimates I've seen is at least 60 to 70% of, the tariff cost is ultimately reaching the end consumer. Those numbers are somewhat outdated. And I would say that as tariffs become more and more permanent over time, you'll see that number go up. Because businesses can, try to hold off on raising prices and accept some level of margin, reduction for a certain period of time. But over the long run, all things have to equal out. And, and people will find an equilibrium of margin in their business that they need to operate with. And so ultimately, you know, the future tariffs will end up being passed on all the way to the end consumer, especially in an economy like we have today, where rising energy prices are also taking meaningful, leading to meaningful margin reduction in the small business. You know, and as a result, these small businesses are really, you know, working with multiple, forces that are making, making it difficult to operate with sustainable margins.

Yeager: And PNL you mean products and liabilities? Is that what you meant?

Johnston: Right. Profits and losses.

Yeager: Profits and losses. There you.

Johnston: Go. Make some statement. Yeah, a of a small business.

Yeager: Okay. Let's go then to the impact tariffs are having on inflation in general. Is there a way to extract the stubbornness of that, of that or is that another, even hotter potato?

Johnston: You know, I think, you know, where where rising prices come from is somewhat of a scientific experiment and some somewhat of a political talking point. But there's no doubt the tariffs drive up the cost of goods across the economy. And so this means higher costs to purchase inventory, higher costs to upgrade your facilities, higher cost to purchase plant and equipment that you're going to use in production. And since many of these expenses are actually financed, this means higher financing costs as well. So, you know, at any cost that is essentially, you know, tariffs at the end of the day, they're essentially a tax. So any cost that is taxing the end consumer is going to lead to higher prices across the economy, both for small businesses and for the end consumers of the products that they produce.

Yeager: All right. Let's take it now to the part where the tariffs were to encourage more American companies to source things locally or in the country, or move operations from another country inside our borders. Do you have exact, situations where that has happened?

Johnston: I don't have a lot I don't have a specific example where someone has come to us and said, hey, I'm a new business. And, you know, I've decided I've decided to start a new manufacturing facility in the United States. And so I'm raising capital for that. Most of the businesses that were funded have been in operation for several years. That being said, I think there's ample evidence that the manufacturing base in the country is beginning to grow, and that there is a trend toward repatriation of manufacturing back to the United States. To some extent, I think this was happening before the tariffs, went into place. I think supply chain disruptions that we've seen around the world, starting in Covid, have been challenging for many, small businesses that are procuring goods from overseas. I think technology advancements, that are allowing for more automation, and the introduction of robotics into the manufacturing base is starting to make certain types of manufacturing more affordable, in the United States. And then obviously, the tariffs have put real financial incentive into, producing goods here in the US. And, you know, oddly enough, the, current hostilities in the Middle East, which are threatening the Strait of Hormuz and the ability to get oil out of the Middle East, actually is, on a relative while it's not good for small businesses or small business margins on a relative basis, it makes energy costs here in the United States somewhat cheaper than they are in, many of the manufacturing locations that we import so much from in Asia. And so if the relative cost of energy is lower in the United States than it might be in China or Vietnam or another major Asian, manufacturing area, that only makes the opportunity to manufacture in the United States, potentially more valuable. And so, you know, I expect that we will continue to see a trend toward, the repatriation of manufacturing into the United States.

Yeager: In the data shows. And yeah, when you said before you said China, I was going to interrupt you and say, cough, cough, China. China is what you were alluding to right there.

Johnston: Exactly. Okay. So China is the biggest producer in Asia. The biggest the biggest manufacturing producer in the world. Hands down. There's really no one that rivals them, and exports.

Yeager: And I guess the out of Covid into the supply chain challenge was really the first step in to putting things back, changing our outlook on how we just in time, stocking manufacturing, shipping, stockpiling. That changed us a little bit and emphasized the importance of having things that can be here, not necessarily go through San Jose or Savannah or Los Angeles, Long Beach, wherever that is.Change some of that discussion as well. So it's not just Covid, but it's the offshoots of it that that we've all kind of reevaluated all of these, prior, I guess you would say constitutional wisdom or conventional thinking. Is that right?

Johnston: That's right. The supply chain was really, really difficult to manage for many small businesses from the moment Covid began all the way through, once we started to emerge from Covid and there was really an excess of, of funds that had been pushed into the economy, that gave consumers a tremendous amount of purchasing power, and a tremendous amount of demand. And that led to shortages. There had been all kinds of disruptions in terms of getting goods from countries that were in various stages of lockdown on the ships and through ports in the United States that were also in various stages of lockdown. There was it was a very challenging time on the procurement side for small businesses.

Yeager: Is there a, I guess, have we been better, have these tariffs made us better at making widgets or improving our services for our small businesses? I mean, where has the I guess what's the growth of the small business type? Is that the one that maybe it's the books or it's something it's more of a, a manufacturing, a service or a manufacturer.  Which one has benefited better from higher tariffs?

Johnston: Well, I would say that if you are a domestic manufacturer and you were a domestic manufacturer before the tariffs went into place, you have received a certain level of protection from those tariffs. That was not there beforehand, most likely. I think that gives domestic manufacturers some additional room to grow. And hopefully, if you believe that, that despite the Supreme Court's ruling, the administration will find ways to keep some of these tariffs in place, then those domestic manufacturers who have benefited from this protection will continue to thrive. And you'll see greater investment into, into those businesses on the services side. I'm not sure that they have been, they haven't really been helped, to my knowledge. From the tariffs, if anything, you could make an argument that a restaurant providing food service has been hurt because they may be paying higher costs for food. That is imported. The same as a contractor may have been hurt because the cost of raw materials is likely higher than it would have been otherwise. Because it is domestically sourced, and therefore more expensive. So you can make an argument that certain parts of the economy are benefiting, while arguably much larger parts of the economy have been hurt, in some ways. But keep in mind, we also had an extension of the tax cuts, that came in with, the Trump administration as well. And, you know, I look at tariffs as really being a tax which counteract the tax cuts that we saw, for businesses, during the first Trump administration and then were extended through, in 2025, when legislation was passed to it to extend them.So one tax is, a bit more regressive than the other tax. A tariff is a tax on all consumers at the level that they consume, whereas the tax cuts really benefited, those who had assets and businesses more than, ultimately benefited the, consumer. So their different taxes, but they had counteracting impacts on, on small businesses.

Yeager: And to in two types of groups is what you're saying hurts one on the regressive side, for the consumption of the goods and services. That's why a sales tax harder for a lower income. Somebody under 100,000 per year, income versus the above. And then that just does that put a wedge further wedge in that divide?

Johnston: It could you know, and I think economists may make that argument. I would, you know, I personally feel like we are operating in what they call a k-shaped economy.

Yeager: The old k-shaped.

Johnston: Yeah. Right. Where the the top and, American consumers, are experiencing, you know, pretty good economic times. These are people who may be a bit older. They have had the opportunity throughout their life to accumulate wealth. They own real estate. They were educated long enough ago that they either were able to pay off their student loans, or they didn't have too many student loans to begin with. Whereas younger people haven't had the the time to be able to accumulate that wealth and are now facing, an economy where it's harder and harder to make ends meet. And asset prices have, have grown a lot over the last 15 years, and they feel somewhat priced out of the market. And that is orienting where consumer spending is going and therefore is orienting where businesses are trying to provide services. So if you're a business that's focused on the top half of that, K, you're probably doing pretty well. If you're a small business is focused more on, the, the bottom end of the consumer, landscape, then you have to be very, very, very judicious as to how much of your cost increases you can really pass on to the end consumer without seeing a big falloff in consumption.

Yeager: Let's circle back to one of the things you said at the beginning on the the refunds of these tariffs. And if that is coming, is it worth it for a business to try to chase some type of refund from the Supreme Court ruling?

Johnston: Well, I think this is a really big open question that has not been resolved yet. So the Supreme Court just didn't rule on this point. And there and by not ruling, they've essentially left it to Congress to decide what to do or to subsequent, lawsuits that will work their way through the courts and force them to rule at some point, should they decide to pick up this question. The Democrats have put forth several bills, one of which is the Small Business Relief Act. This really hasn't been taken up, by, by Congress in a serious manner. And it's hard to imagine that something like this is passed, until after the midterms. If, if it's passed at all, if it were to be passed, there would be an automatic, payback to all of those who paid tariffs over the 20, 25 year, before the it was really up until the Supreme Court's decision. So in theory, the businesses wouldn't have to sue. The issue is the refund would go back to those who actually cut the check at the point of entry for to get the goods into the country. However, as we've talked about, a decent amount of that cost was passed directly on to the end consumer. And so you you wouldn't see consumers getting a direct benefit from this unless that benefit trickled down through lower prices in the future.

Yeager: And businesses are reluctant to wait to lower prices. They might keep them stable for a long, long time, but it's hard to see prices go down. It's easy to see them go up, and that's across the board. That's not an indication, an indictment of anybody, but that's just the way it works, right?

Johnston: It's the way it works. And you know, in a healthy economy, you generally don't like to see prices drop. Because deflationary spirals can be very destructive, to future growth and demand. If consumers begin to think that well, if I, if I just don't consume now, if I consume later, it will be it will be cheaper, than all kinds of demand can grind to a halt and you can start seeing your economy tip into recession. So while we don't like too much inflation, we don't want too little either. Because, you know, you can have some very negative consequences economically for that.

Yeager: Yeah, we get to that word stagflation as well, the recession. Yet some words that we don't like to say out loud in public if we can help it. All right, real quick here, Ben, look at this from a historical perspective for me for a minute. Is this indicative of any other time in the last 50 years that we've seen? I don't I mean, I know World War Two is is a whole, you know, part of an economic discussion. But since World War two, has there ever been a time like this where a small business is under pressure and the consumer is under pressure because of tariffs?

Johnston: Not really because of tariffs? Tariffs haven't, been a, a large part of economic policy in my understanding, since the Smoot-Hawley. Which was, you know, a Hoover administration initiative, and led to what many believe was a deepening, the Great Depression. You know, I don't think that tariffs are having the same impact on the economy today as they were back then. Economically, I think everyone today is is honestly more worried about, spiking oil prices and what those prices combined with tariffs might do to create an economic environment, more like what we experienced in the 1970s. And that was truly the last time you saw stagflation, where you saw the price of oil driving all kinds of prices of goods, up while the unemployment rate was also spiking. Fortunately, right now, unemployment is at a pretty decent level, 4.4%. At this point, it's up 100 basis points from its lows of a couple of years ago. So it's not trending in the right direction, but, it's still much better than we were, in the late 70s, when the last oil shock really, hit the US economy hard.

Yeager: What is going to end our discussion, as a whole in this country on the economic channels and beyond, about tariffs.

Johnston: What is going to end our discussion?

Yeager: Yeah.

Johnston: I would say that despite, the fact that tariffs have been very unpredictable, businesses have handled that unpredictability quite well over the last year. And I think, there is an expectation that over the long run, some level of tariffs are here to stay and that neither party is likely to be rolling them back, completely going forward. And, and I think small businesses are learning, how to deal with that and will take opportunities to produce more at home as a result of that.

Yeager: Therefore, having other, impacts on the economy as a whole of of making more in this country, employing a more varied workforce and, those who maybe write checks to small businesses, you diversify as well, then?

Johnston: Yeah, absolutely. And I do think that the move toward greater automation in production, is going to be a big part of the story to make repatriating, manufacturing, back here to the United States. We see some of the biggest titans in industry out there looking at how to raise capital in order to, affect that, that type of manufacturing build out. And I think while AI is going to infiltrate nearly every aspect of the business community, I think manufacturing move will play a huge role in the, in advances in automation in the United States going forward. And it may help us become an even greater manufacturing hub in the future.

Yeager: It'll just be a different type of manufacturing.

Johnston: It'll look different then, unfortunately, it won't bring back, the, the, you know, the huge labor forces that once powered our manufacturing facilities. But it will bring labor. It will be technical labor, and and it will bring some blue collar labor, just probably not as much as, we enjoyed in the, 60s and 70s and 80s.

Yeager:  Again, the economy will look different and the job will look different. And what they're teaching in schools, I have a I have two one about ready to enter the workforce, one that's getting ready to, their jobs look different than what our jobs look like when we were their age. Two. And that's that's what's that's that's part of it of evolving economy to it is.

Johnston: And I think as long as it doesn't evolve to rapidly for humans to be able to change along with, with the technological change, you know, I think we will ultimately be in a better position. It's when radical change happens too quickly and we're and we as, as, as Americans aren't able to adapt to that the that that we can be facing problems. So that's that's the thing I'm in. I'm on the, I'm keeping an eye out for as the rate of change that we force upon society here.

Yeager:  Americans, we love change… said no American ever. I shouldn't say it that way, but that's that's part of it. Change is always a hard thing to do. And sometimes it's just. And like you said, recalibrating, retooling. That's a businesses have done. They've pivoted the smaller ones. Fascinating. All right, Ben, thank you so very much for the time. I appreciate it.

Johnston: Thank you very much. I enjoyed it.

Yeager: New episodes each and every Tuesday. Our production supervisor is Sean Ingrassia. His crew is Reid Denker, Kevin Rivers, Neil Kyer, Julie Knutson, and David Feingold. The executive producer of Market to Market is David Miller. I'm Paul Yeager. We'll see you next time.