Why It Matters
California small businesses are confronting a cascade of economic pressures—tariff uncertainty following Supreme Court intervention, rising fuel and shipping costs tied to conflict in the Middle East, and weakening consumer confidence. The challenges threaten survival for retailers operating on thin margins, with implications for a sector that generates 99% of the state’s net new jobs.
What Happened
Small retailers across California report sales declines and mounting costs as they navigate tariff policy shifts and supply chain disruptions. One San Diego business owner saw 2025 sales drop up to 50% compared to the previous year, cutting staff from eleven to three while paying tens of thousands in tariff costs. The owner shifted production from China to India but now faces a 25% raw material price increase from that supplier.
Fuel price spikes have compounded the problem. Regular unleaded gasoline in California averaged $5.55 per gallon in recent weeks, up from $4.79 a year earlier. Nationally, prices climbed to $4.11 from $3.15 over the same period. Major carriers responded with new surcharges: Amazon instituted a 3.5% fee for third-party sellers, the U.S. Postal Service planned an 8% temporary surcharge, and UPS and FedEx raised their fuel-related fees.
By the Numbers
- Sales at one San Diego retailer declined up to 50% year-over-year in 2025
- California gas prices: $5.55 per gallon versus $4.79 a year ago
- National gas average: $4.11 versus $3.15 a year prior
- Raw material costs in India up 25% for one manufacturer
- Small businesses account for 99% of California’s net new jobs
Zoom Out
The Supreme Court invalidated substantial portions of the administration’s tariff framework, creating uncertainty for businesses that paid duties and now seek refunds. The timeline for processing those refunds remains unclear. President Trump imposed replacement tariffs under different legal authority, prompting California and other states to file suit.
Port of Long Beach officials said shipping companies stopped absorbing cost increases and now pass them to customers. National Retail Federation representatives noted small retailers lack the financial cushion larger competitors maintain to weather price volatility.
Consumer confidence reached record lows as inflation accelerated in March, driven partly by fuel cost increases. Small retailers report customers shifting to lower-priced alternatives—choosing denim bags over leather, for example—or cutting discretionary spending entirely.
What’s Next
Retailers await clarity on tariff refund procedures for duties paid before the Supreme Court decision. Legal challenges to the administration’s revised tariff structure continue in federal court. Business owners face decisions on whether to raise prices to cover higher costs, knowing price increases could drive away customers already pulling back on spending. The California Office of the Small Business Advocate defines small businesses as those with fewer than 500 employees—a category that creates millions of jobs annually in the state.