Eight years ago, Steven Borrelli, an American entrepreneur on the West Coast, raised $50,000 from family and friends to start an e-commerce clothing group called Cuts. He has since developed it into a successful adventure using only internal funds.
But now, he needs a financial lifeline. reason? Like many others, Borrelli imports goods from countries such as China and Vietnam. Now he faces the expiration of today's crucial "De-Minimis" regime, which previously retained the price of importing from tariffs at lower prices in China, in addition to increasing the tariff increase.
Even if he could partially offload it to suppliers and customers, Borrelli had to find money in some way to pay the tariff bill, not to mention the investment needed to move his supply chain. Even banks seem to have avoided it due to economic uncertainty and stigma surrounding China. Probably he told me. "I support Trump's vision," he stressed, noting that he repeatedly voted for him. “But we need time to adjust (or) you see thousands of companies going bankrupt.”
Investors and Trump himself should pay attention. According to news this week, the economy signed a contract of 0.3% in the first quarter, shocked by the devastating effects of tariffs on physical actions and commodity prices. As retailers are already preparing for Christmas, Trump is starting to look like the Grinch. Indeed, he seemed to admit that he himself this week, Ventilation told Americans that they should realize: "Maybe the kids will have two dolls, not 30 dolls (this Christmas), and maybe two dolls will cost more money."
But what hasn't received much attention yet is the drama: another aspect of finance. Most notably, if the tariffs remain in place, companies will be anxious to find the cash needed to pay these bills and prepare for other potential shocks (including looming supplier and customer defaults).
Can these funds be found whether it is through attacking the credit line or anything else? Theoretically, the answer should be. Overall financial situation has tightened recently, but remains relatively benign by historical standards. In addition, banks are rich in capital and the private credit industry has exploded. While banks are making provisions for corporate defaults, the Bank of England warns that tariffs could increase loans – overall bank loans have actually risen this year.
But, as Stephen Blitz, an analyst at TS Lombard, pointed out, this loan data is backward looking and may be outdated. Indeed, he believes that if the tariffs remain in place, it will squeeze credit and exacerbate the risk of recession. “Credit flows rather than commodities are a risk of growth,” he said. “Businesses usually borrow inventory and unless a 100% tariff is passed, profit margins can adversely affect the ability to pay.”
In theory, the White House could dust the script it successfully used in the Covid-19-19 supply chain shock, i.e., provide loans or grants to affected companies. It can also offer cheap loans to companies looking to transfer production to the United States.
Some smaller businesses are begging for another possible response: exempting tariff fees for companies that guarantee investment in domestic factories. Sean Frank, founder of Los Angeles-based e-commerce group Ridge, wrote on X about industrial support provided by China. He noted that some startups now have an imminent tariff bill of $200,000 that could better invest in U.S. infrastructure. “(We) would love to bring manufacturing back to the United States – please don’t let a million small rural businesses die.”
But the White House has not responded yet. This may be because Trump’s team is determined to show that it is cutting rather than expanding the public sector’s footprint. Almost certainly, this also reflects serious holistic thinking, which is playing more and more alarms even among some of his most powerful tariff advisors. One person told me: “I believe in tariffs, but the enforcement does worry me.”
And a cynical person might cite another possible explanation for lack of action: Some Trump advisers suspect tariffs will weaken tariffs under business pressure. After all, that's what the likes of Goldman Sachs head David Solomon seem to expect, and that smaller groups are praying. “These tariffs could sink my company and many other tariffs,” Matthew Hassett, founder of Loftie, an organization that imports lighting from China, wrote on LinkedIn. “I hope this reason prevails.”
Maybe. But if Trump does not surrender, anxiety will swell - half of the hidden battle for cash. "I hope that all the people who voted for (Trump) (like me) won't be destroyed in the cross hair," Borelli told me. All eyes were focused on the White House - ironic about unexpected consequences.
gillian.tett@ft.com