Tariffs, War, and Rising Fuel Costs Push California Small Businesses to the Brink
Why It Matters
California’s small businesses — already strained by ongoing tariff uncertainty — are now absorbing a new wave of economic pressure from the conflict in Iran and surging fuel costs. For a state where small businesses have accounted for 99% of net new jobs in recent years, the compounding financial burdens threaten both livelihoods and the broader California economy.
What Happened
Small retailers across Southern California say they are struggling to stay afloat as multiple economic forces converge at once: tariff-related cost increases, fallout from the Iran conflict, higher fuel prices, and weakening consumer spending. The situation has forced business owners to cut staff, reduce production, raise prices, and in some cases halt manufacturing relationships built over years.
Nichole MacDonald, owner of Sash Bag in San Diego — a women’s bag company bringing in six figures per month — said her 2025 sales dropped by as much as 50% compared to the prior year. She reduced her workforce from 11 employees to just three and shifted all manufacturing from China to India to reduce tariff exposure. Her longtime Indian manufacturing partner has since informed her that raw material costs rose 25%, adding yet another layer of cost pressure.
Rema Abedkader, a Temecula-based designer behind the REMA women’s clothing brand, said she cut production by roughly 30% last year and has been forced to reduce it by another 50% in 2026. The ripple effects have hit her entire local supply chain — her seamstress, pattern maker, and cutter have all seen reduced work as a result. “When I’m not producing, there’s no work for my sewer, pattern maker and cutter,” Abedkader said, according to reporting by CalMatters.
By the Numbers
Key data points from the current economic environment facing California small businesses:
- California’s average price for regular unleaded gasoline stands at $5.55 per gallon, up from $4.79 a year ago, according to AAA — well above the national average of $4.11.
- MacDonald’s annual sales fell by up to 50% in 2025, and her headcount dropped from 11 to 3 employees.
- Abedkader reduced production by 50% in 2026, following a 30% cut the prior year.
- Amazon has added a 3.5% third-party seller surcharge for fuel and logistics; the U.S. Postal Service is planning a temporary 8% surcharge, with UPS and FedEx also raising their rates.
- Small businesses account for 99% of net new jobs in California in recent years, according to the California Office of the Small Business Advocate.
Zoom Out
The pressure on California’s small retailers reflects a national pattern. Jonathan Gold, vice president at the National Retail Federation, said in a recent media briefing that small businesses “don’t have the ability to absorb cost increases and typically have to pass those along to the end consumer.” Unlike large corporations with diversified supply chains and capital reserves, small retailers operate on thin margins that leave little room for error.
The Port of Long Beach — one of the nation’s busiest shipping hubs — has become a focal point for the crisis. Noel Hacegaba, the port’s chief executive, said during a media briefing earlier this month that shipping costs that were once absorbed by large carriers are now being passed directly to smaller operators and consumers. “Today, those costs are being passed along across the board,” Hacegaba said, as reported by CalMatters. “We’re seeing new surcharges and higher rates.”
While the Supreme Court has invalidated the bulk of President Trump’s wide-ranging tariffs, the administration has pursued separate tariff authority under a different legal framework. California and other states have filed a lawsuit challenging those measures. Some businesses that imported goods directly may be eligible for tariff refunds, though the timeline for processing remains unclear. California has also seen some economic bright spots, with at least one drone manufacturer committing to expand domestic production in the state — a sign that certain sectors are adapting to the new trade landscape.
What’s Next
Small business owners say they cannot sustain current conditions indefinitely. MacDonald indicated she will likely need to raise prices again after a 10% increase last year, citing razor-thin margins. Abedkader said she is working harder than ever on creative marketing and local wholesale channels to keep her business moving — but warned that without government action, many small businesses may not survive.
The outcome of the ongoing lawsuit against the administration’s remaining tariff measures could bring some relief, though legal timelines remain uncertain. In the meantime, retailers are watching fuel prices, shipping surcharges, and consumer confidence — all of which remain under significant pressure heading into the summer months.