The president’s tariffs are paid for by U.S. importers, which means those costs are ultimately borne by U.S. consumers. But all along that supply chain between our ports of entry and our store shelves are businesses, which have to decide whether to pass along those import taxes, or absorb some of the cost themselves.

Recent research from the JP Morgan Chase Institute found that the degree to which a business is exposed to the Trump administration’s tariffs can depend a lot on its size. And midsize companies, not small or large ones, are disproportionately exposed to the Trump Administration’s tariffs.

Argonaut Manufacturing Services, a pharmaceutical manufacturer based in Carlsbad, California, makes drugs and diagnostic tests for other companies. And depending on the product it’s making, the company imports chemicals and other raw materials.

“Really, [from] all over,” said Wayne Woodard, the company’s founder. “Europe; a number of the materials come from China. If you look at the whole supply chain of the raw materials that go into those products we buy for our customers, they’re — generally speaking — global.”

That means the company is exposed to all kinds of tariffs. Woodard said that’s not only because it has to import its raw goods. It’s also because as a midsize drug manufacturer, the company doesn’t have as much leverage with its suppliers compared to bigger drug companies, which have the scale to negotiate discounts.

“If you were going to use thousands of thousands of kilograms of this material, you’re going to have a different negotiation with the raw materials suppliers than the small or midsize companies,” Woodard said.

There’s no official definition of a midsize business. The JP Morgan Chase Institute said midsize companies’ annual revenues can range anywhere from $10 million to a billion dollars.

“So think more than 10 or 15 employees, but not the big public companies that you hear about all the time,” said Chris Wheat, president of the JP Morgan Chase Institute.

Wheat said midsize companies also have disadvantages compared to smaller ones. That’s because small companies often buy their supplies from the same places consumers do: big retailers, which are more likely to absorb the cost of tariffs. 

But Wheat said midsize companies typically buy directly from importers.

“If you’re a medium sized business, and you’re buying something more specialized, or you really need to get it from a particular supplier, there’s quite a bit of exposure,” he said.

The JP Morgan Chase Institute found that midsize companies with the most tariff exposure include chemical manufacturers — think drug companies, like Argonaut Manufacturing Services. Auto parts manufacturers and retailers have plenty of exposure, too.

Chris Duong runs Hawaii Supermarket, a grocery store near Los Angeles that sells products from China, Vietnam, Thailand, and Cambodia. He said some of his suppliers are passing along tariff surcharges as high as 20% and 30%, especially on the cheaper imports he sells.

“Sauces, seasoning packets, a lot of the dried goods,” Duong said. “Just because the margin’s already so thin on those.”

Duong said he’s doing what he can to avoid having to raise his prices. He’s trying to negotiate with his suppliers to lower those tariff charges. He’s also reducing his profit margins. Duong said the fear is that consumers just won’t buy those products if they’re too expensive.

“On the retail end, we kind of know how price-sensitive certain products are,” Duong said. “If you take too big a price increase, then the demand will just fall off a cliff.”

But absorbing the cost of tariffs can have consequences for the economy. Midsize businesses are responsible for about a third of private sector employment, according to JP Morgan Chase Institute.

“Our company’s about 35 people — we’ve reduced it by about 10%,” said Lyman Munson, who runs S.L. Munson & Company, which manufactures and imports various tools used to make auto parts.

Munson said when he tried passing along tariffs as an added surcharge, his customers had bad reactions.

“They said, ‘Oh, we’re not accepting surcharges,’” Munson said. “‘But you have to sell it, you have to deliver, because we have a purchase order with you. And on line 37, it says we don’t accept any tariff charges’.”

So Munson said he has a new strategy: He’s simply charging his customers more for his products. No mention of tariffs.

“We just have a new price that is based on our cost,” Munson said. “Costs have gone up. Should costs go down, we’d be glad to reduce our price.”

Munson said he doesn’t have any other options. After all of those layoffs, the company doesn’t have much else to cut.