Small business owners across the United States felt a spark of optimism in May, buoyed by a temporary break in trade tensions with China. Yet, beneath the surface, growing concerns about unpredictable tax policies and an uncertain economic future are keeping many on edge. A closely watched survey showed a noticeable uptick in confidence, the first in months, but also revealed a rising tide of unease among entrepreneurs navigating a shifting landscape.
The National Federation of Independent Business reported that its Small Business Optimism Index climbed to 98.8 in May, up from 95.8 in April, crossing the long-term average of 98 for the first time since last winter. The boost came largely from a recent decision to lower tariffs on Chinese goods from a steep 145% to a more manageable 30% through early August. This change lifted hopes for stronger sales and eased some pressure on costs. But the same survey showed uncertainty creeping higher, with its uncertainty index ticking up to 94, as owners grappled with questions about taxes and trade.
Bill Dunkelberg, the group’s chief economist, captured the mixed mood, saying, “The tariff relief has given small business owners a moment to catch their breath, but the fog of uncertainty around taxes and trade talks is making it hard to plan for the future.” He pointed to a major tax-cut proposal, still stuck in Congress, as a key source of concern for business owners weighing decisions about hiring or investing.
The survey painted a picture of cautious hope. A quarter of owners now expect better business conditions, a 10-point jump from April, while 10% anticipate stronger sales after adjusting for inflation, up 11 points. Taxes, however, have surged to the top of owners’ worries, with 18% naming them their biggest challenge, up slightly from last month. Inflation, while still a headache, has taken a backseat to tax concerns for the first time in over a year.
The broader context helps explain these shifts. Recent months have seen wild swings in trade policy, with abrupt tariff changes affecting goods from China, Canada, and Mexico. The temporary tariff cut on Chinese imports, part of a 90-day trade truce, has given businesses some breathing room, but its expiration looms large. Meanwhile, a major tax-cut bill, hailed by some as a game-changer for small businesses, has passed the House but faces a tough road in the Senate, where lawmakers are sparring over its impact on the national debt. This limbo is fueling the uncertainty that’s keeping owners up at night.
Across the country, small business owners are reacting with a mix of relief and caution. Retailers and manufacturers welcomed the tariff reduction, noting it could lower costs for materials and boost profits. “It’s a small win,” said Maria Gonzalez, who runs a family-owned clothing store in Seattle. “But we’re still waiting to see if this trade deal holds or if we’re back to square one.” In contrast, construction and transportation businesses are struggling with labor shortages, though fewer owners—34% compared to 40% in March—reported unfilled job openings. Fewer businesses are raising wages, with compensation increases at their lowest since early 2021, a sign that the labor market is cooling. Meanwhile, delivery times are stretching, and inventories are at their leanest since August 2022, raising fears of price hikes or shortages.
The stakes are high for small businesses, which drive nearly half of the nation’s economy. Persistent uncertainty could lead owners to pull back on hiring or expansion, potentially slowing growth in communities nationwide. The dip in labor quality concerns suggests businesses are focusing more on managing costs than growing, a shift that could ripple through local economies. Economists warn that without clear answers on trade and taxes, caution may become the default.
What comes next depends on decisions in Washington. The trade truce with China is set to expire in August, and any return to high tariffs could erase May’s gains. The tax-cut bill’s fate remains up in the air, with Senate debates likely to shape business plans for months to come. As Dunkelberg put it, “It’s like running a business with one hand tied behind your back—owners are resilient, but they need some clarity to keep moving forward.” For now, small business owners are holding their breath, hoping for steadier ground in the months ahead.
