In the era of globalization, the world’s economies are increasingly interconnected and a political or economic disruption in one part of the world has a cascading effect in countries that may not even trade directly. While the effects of disruption in global sourcing on large companies is well known, small businesses have been facing existential challenges that, in many cases, have caused them to go out of business.
The world has been grappling with a severe trade crisis that started with the COVID-19 shutdowns and has been exacerbated due to geopolitical tensions and protectionist policies. Global trade volumes plummeted by a staggering 8.2% in 2020, marking the largest decline since the financial crisis of 2008 (OECD, 2022). Recovery has been slow, significantly impacting small businesses which lack the resources of their larger counterparts. According to a SCORE survey, only 12.2% of small business owners reported profitable operations, marking a nearly 20% decline from the previous year (Score, 2024).
The theory of comparative advantage in international trade considers opportunity cost in production decisions. However, trade barriers like tariffs and quotas disrupt this flow, distorting comparative advantage. Carolina Rikart, a jeweler employed at Serenity with a Bachelor's degree in Economics, notes that “small businesses, which [often] rely on imports, face higher costs because of tariffs, which reduces their competitiveness [in the market] and stifles growth.”
Similarly, Sawyer Caldwell, the owner of a family-run boutique in downtown Chicago, stated,"Our business relies on imported goods, especially from Asia and Europe. With the increasing tariffs, our costs have increased but our customers don’t really want to spend that much."
Łukasz Kubiak, a Polish immigrant who makes pottery in North Carolina, explained that "I cannot source quality porcelain clay from Ukraine because of supply chain disruption caused by the war. [It] is not a matter of cost but my craft’s core is being ruined.” Without access to these materials, she states that she “cannot make the intricate designs my customers love so much which puts my work at risk."
As policymakers and global leaders navigate trade disruptions, it is crucial to prioritize initiatives that streamline trade procedures, provide financial assistance and promote international cooperation to ensure that these businesses remain vital contributors to the global economy.
List of sources: (include links and list of interviewees)
https://www.score.org/resource/blog-post/covid-19-impact-and-future-small-business
List of interviewees:
Carolina Rikart
Sawyer Caldwell
Łukasz Kubiak
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