Tariffs Are Coming

Get ready for a fundamental reshaping of America's labor market.

Just this week, the Trump administration announced big tariffs on our biggest trading partners. The dust hasn’t settled yet, as delays have been announced for implementation, but everybody is talking about how the new administration's trade and immigration policies will help or hurt our economy. While pundits are making predictions about the positive or negative impact of these policies on the economy, I just know that good or bad – the labor market is going to be radically different. Especially for small businesses that depend on hourly workers.

One thing most economists will agree on is that we're about to see an unprecedented squeeze on labor supply. The combination of stricter immigration policies and reshoring of manufacturing will intensify the worker shortage we're already experiencing. Even if the manufacturing jobs don’t materialize, consumer demand will shift from low cost imports to services. In either case, for the bottom 20% of wage earners - who are already seeing their first real wage gains in 35 years - this means their bargaining power is about to get even stronger. This introduces new challenges for businesses, but also opportunities for those who adapt quickly to the changing landscape.

How Did We Get Here?

Globalization gave American consumers access to the world's products, and businesses got access to the world's labor markets. For decades, businesses could reliably cut costs by moving production overseas or outsourcing services to these lower cost markets. This "labor arbitrage" helped keep wages down across the board.

Recent de-globalization disruptions have pulled back that access:

1. COVID-19 exposed the fragility of global supply chains, pushing many businesses to prioritize reliability over cost savings. Just-in-time became Just-in-case.

2. Growing geopolitical tensions, particularly with China, accelerated the trend toward reshoring and near-shoring of production.

3. Trump's "America First" policies, along with nationalist movements all over the world have increased the friction of international trade, making overseas production more expensive and complicated.

You can see the impact in today's unemployment rate – it's hovering around 3%, the lowest we've seen in over 40 years. Economists call that a hot labor market. But more interesting to me is what's happening beneath the surface.

For the first time in my career, I'm watching the lowest-paid workers actually gain real bargaining power. We're not just talking about minimum wage laws or union contracts – we're seeing genuine market pressure pushing wages up from the bottom.

Check out this unemployment chart. Sure, it shows the typical ups and downs you'd expect – recessions, recoveries, the usual economic drama. But what makes today different is who's benefiting from these tight labor markets.

Looking at the wage gains for the bottom 20% earners, before and after 2016 really drives it home. For 35 years – basically my entire working life – the lowest-paid 20% of workers saw their real wages (that's wages after inflation) either shrink or stagnate. Meanwhile, folks at the top just kept earning more and more. But look what's happened in the last eight years: for the first time since Ronald Reagan was president, workers at the bottom are seeing real gains.

That's not just a statistical blip, and real wages means that this data is adjusted for inflation so this is a sign that something fundamental has shifted in our labor market. The days when businesses could just post a help wanted sign are over. It's now a fight to get and keep staff.

Why Labor Supply Will Shrink Further

Now here's where things get really interesting. That labor shortage that's already driving up wages? It's about to get much more intense. We've been relying on a steady flow of immigration to offset our aging workforce, but that's about to change dramatically.

This really jumped out to me looking at how our workforce changed over the last 16 years. As millions of Baby Boomers headed into retirement, we've relied more and more on foreign-born workers to fill those gaps. Back in 2007, about 15% of our workforce was foreign-born. Today, that number is pushing 20%.

This wasn't an accident – it's been crucial for keeping our economy running. Think about it: we've been losing experienced workers to retirement faster than we can replace them with new American-born workers. Immigration has been our pressure release valve.

But with stricter immigration policies on the horizon, that valve is about to close. At the same time, new tariffs and trade policies are encouraging more manufacturing to return to American soil. Each new factory announcement means more jobs that need to be filled – but with fewer workers available to fill them.

Put simply: we're about to hit a perfect storm in our labor market. Fewer immigrants coming in, more Boomers retiring, and more jobs being created through reshoring. For workers, especially those at the lower end of the wage scale, this means even more bargaining power. For businesses, it means getting creative about how to attract and retain talent isn't just an option anymore – it's a survival skill.

Where We'll Feel It Most

The biggest impact won't be in tech or skilled trades - it's going to hit hardest in roles that don't require specialized training or experience. Think about it: when a software developer changes jobs, they might need weeks or months to get up to speed in a new environment. But in many hourly wage positions, workers can be productive on day one at their next job.

This mobility is creating a whole new dynamic. Workers at the lower end of the wage scale can now easily compare opportunities and jump ship for seemingly small differences. I'm seeing businesses lose people over things that wouldn't have mattered just a few years ago - one extra work-from-home day, slightly different shift times, or a dollar more per hour.

The numbers tell a brutal story for employers. Even with regular wage increases, turnover rates are climbing. HR teams are processing hundreds of applications to make a handful of hires, and those new hires are just as likely to leave within months. Businesses are spending thousands on recruiting software and applicant tracking systems, but they're just treading water.

Here's what this looks like on the ground:

• Entry-level employees leaving before they're fully trained

• Restaurants and Retail losing staff to warehouses offering better pay

• Service workers switching jobs for more flexible schedules

• Nobody waiting at the day labor lots

The old playbook of competitive wages and basic benefits isn't enough anymore. Workers know they have options, and they're not afraid to use them.

What Smart Businesses Are Doing Now

This might sound like bad news, especially for small businesses that can't match the wages and benefits of larger competitors. But here's where it gets interesting: smaller businesses actually have some unique advantages in this new landscape - if they're willing to use them.

Play to Your Natural Strengths

Big companies try to solve everything with systems and software. But small businesses can do something more powerful: build genuine relationships. Your current employees are your best recruiters. When someone loves their job, they tell their friends. Those personal referrals are worth more than a thousand Indeed.com listings.

This isn't just feel-good advice - it's practical business strategy. I recently spoke with a restaurant owner who hasn't posted a job opening in over a year. Instead, she asks her best employees if they know anyone looking for work. These referred candidates already understand the job demands and culture, and they're more likely to stick around because they have a built-in connection to the team.

Get Creative with Job Design

Unlike large corporations with rigid job descriptions, small businesses can be flexible. A local retail shop I work with created a unique role for a talented employee who needed to care for an aging parent. They combined morning inventory work with afternoon customer service, creating a split shift that worked for everyone. This kind of customization isn't possible in larger organizations where roles are standardized, but it's exactly the kind of flexibility that helps small businesses retain valuable team members.

Invest in Your People

Yes, you need to pay competitive wages - that's just table stakes now. But money alone won't keep good people. What keeps them is growth. Small businesses can offer something unique here: direct mentorship and clear paths to advancement. A manufacturing company I know pairs every new hire with a senior employee for their first year. This isn't just training - it's a relationship that helps new employees develop skills and see their future in the company. Think about it from an employee's perspective: Would you rather be employee #1,457 at a giant corporation or one of twenty people learning directly from the owner of a successful small business?

Build Real Community

This is where small businesses can really shine. You're not just offering jobs - you're building a team where everyone knows each other and feels valued. A local garden center holds monthly team breakfasts where they discuss everything from new plant arrivals to personal achievements. These aren't just meetings - they're opportunities for everyone to contribute ideas and feel part of something bigger than just their job. That personal connection is worth more than many employers realize.

The labor market is changing, and these changes are here to stay. But small businesses that lean into their natural advantages - personal relationships, flexibility, direct mentorship, and strong community - can not only survive but thrive in this new environment. It won't be easy, and yes, you'll still need to pay competitively. But the businesses that will succeed aren't just the ones with the biggest budgets - they're the ones that create places where people actually want to work.

The key is starting now. Don't wait until you're losing people to make these changes. Build these strengths into your business today, and you'll be better positioned to handle whatever the labor market throws at you tomorrow.