Small-scale manufacturers and other businesses are being throttled by the tariffs and need support to adjust and survive. States should step in to help — in both the short and long term. State economies can thrive with a strong and supported small-scale manufacturing sector or lose out on this economic engine and see it disappear without support.
The future of Trump’s tariffs now rests with the Supreme Court, and it could be months before the court rules on their legality. In the meantime, small-scale manufacturers are reeling from the tariffs’ impact, and that spells trouble for manufacturing more broadly. As Federal Reserve Board Governor Michael Barr told a business symposium, “Small businesses play a vital role in production networks, often providing specialized inputs that can't easily be sourced elsewhere, and business failures could further disrupt supply chains.”
Small-scale manufacturers are too often overlooked as an economic asset because of their size, typically under 50 employees. Most states don’t even track how many they have, as I’ve learned in my work advancing small-scale manufacturing in more than 200 cities in 44 states over the last decade.
Small-scale manufacturers are vital because of their multiple revenue streams, nimble adaptability and creation of a pipeline of skills, products and innovation. Those revenue streams are derived not only from their products — from artisan crafts and food products to hardware inventions and advanced manufacturing components — but also from the fact that they are sold to both consumers and larger businesses. They can sell in person and online, retail and wholesale. These businesses are found everywhere, in small rural towns and big cities, creating a dispersed economic benefit.
The pipeline between small-scale and large-scale manufacturers arises in three key ways: Small-scale manufacturers train their employees with skills that are relevant to other manufacturing settings; they provide services and products needed by larger manufacturers; and their creativity and inventions generate new products that larger manufacturers increasingly require and often acquire to maintain their competitive edge in pursuing new markets.
Without those resources to draw upon, large-scale manufacturers will not achieve their true potential. For one thing, around half of the 3.8 million new manufacturing jobs that are expected by 2033 could remain unfilled due to a lack of applicants with the needed skills, according to Deloitte and the Manufacturing Institute.
What can states do? In the short term, small-scale manufacturers need help adapting to the sudden emergence of tariffs. Small-scale manufacturers, like almost all small businesses, operate on limited margins and capital, and plan based on what’s known. Unanticipated external impacts can be devastating. The case of Princess Awesome v. the United States of America, now working its way through federal courts, underscores the challenge: an American dressmaker battered by changing tariffs.
As a result, states should consider two forms of relief for small-scale manufacturers: First, create a short-term grant program to cover the cost of tariffs for equipment and materials during a transition period. That cost has caught these small businesses completely by surprise, and new equipment and materials are crucial to their work, their employment and their growth.
Second, remove the business personal property tax from manufacturing equipment. Thirty-six states tax business personal property, such as machinery, equipment, fixtures and electronics, according to the Tax Foundation, but 10 of them and the District of Columbia provide an exemption for small businesses with little tangible personal property. The other 26 should do so.
In the longer term, states should create online directories of small-scale manufacturers: their names, locations, products or services, and contact information. Larger manufacturers would then know what capacities are available to them in the state or beyond. As McKinsey reports, “Interactions between small and large businesses are key to boosting collective productivity.”
Ultimately, states can connect those directories to create regional or national directories. That would strengthen manufacturing at all scales nationwide and bring the benefits to every community — connecting federal support for large-scale manufacturing with local communities’ capacities. While creating those directories, states should also track the revenue and number of employees of their small-scale manufacturers, so that they can understand over time these businesses’ impact on economic and employment growth.
Small-scale manufacturers should not be dismissed due to their size, when collectively they are a vital economic and job generator. They represent the culture of making in America. That culture should be supported and strengthened.
Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.
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