Small business owners across California are watching their margins disappear in 2026, and many of them say the pressure is now too much to absorb. A combination of new tariffs, rising fuel costs, and shipping disruptions tied to the U.S.-Israeli war in Iran has created what several founders are calling the worst operating environment in years.
For thousands of small retailers, designers, and product makers from San Diego to the Bay Area, the math no longer works the way it used to. Goods cost more to import. Containers cost more to move. Customers have less money to spend. And there is no clear sign that any of these pressures will ease soon.
Why California Small Businesses Are Hurting Right Now
The pain is showing up in real numbers. Rema Abedkader, a Temecula-based designer who runs the REMA clothing brand, told CalMatters she had to cut her production by about 30 percent last year. This year, she has had to reduce production by about 50 percent. She buys imported fabric through Los Angeles suppliers, and every link in her chain is now more expensive.
When Abedkader cuts production, the damage spreads. Her sewer, pattern maker, and cutter all lose work. One of her manufacturers had to take a second job just to stay afloat. That kind of ripple effect is hitting hundreds of small ecosystems across the state, where one small brand keeps several other small businesses going.
Nichole MacDonald, the San Diego founder of the Sash bag company, described the same feeling. She told reporters that the war in Iran arrived on top of tariff costs that were already squeezing her business. As she put it, things just keep getting piled on top.
The Port Story Tells the Bigger Picture
The clearest signal that this is not just a few founders complaining comes from the ports. Both the Port of Los Angeles and the Port of Long Beach handle a huge share of the country’s imported goods, and both are now reporting that costs are being passed straight through to buyers.
Gene Seroka, executive director of the Port of Los Angeles, said in a recent media briefing that erratic policy and global instability are making it very difficult for business people to plan. Noel Hacegaba, chief executive of the Port of Long Beach, was even more direct. He said that for a while, shippers absorbed rising costs, including fuel spikes and last year’s tariffs. That is no longer the case. Today, those costs are being passed along across the board, with new surcharges and higher rates appearing on shipping invoices.
Major shippers are now adding fuel surcharges and changing how they route cargo. For a small business that imports a few thousand units of inventory a quarter, even a small per-container surcharge can wipe out a month of profit.
The War in Iran Adds a New Layer of Cost
The U.S.-Israeli war in Iran has done two things at once for California small businesses. First, it has pushed up the cost of fuel, which feeds directly into shipping rates and travel expenses. Second, it has made consumers more cautious about discretionary spending.
One California business owner who travels to direct-to-consumer events in Las Vegas and Scottsdale said attendees were openly talking about how expensive it had become just to get to the events. They wanted to shop more, but they could not afford to. That kind of anecdote, repeated across the country, is exactly what shows up later in slower retail sales reports.
What This Means for the Broader California Economy
California is home to more than 4.3 million small businesses, and they employ roughly 7.6 million people. When even a slice of that base starts cutting production by half, it reshapes the local job market, the freelance economy, and downstream service work.
The state’s economy still leads the nation by overall output, but the small business layer is the part that creates day-to-day jobs in cities and towns away from the big tech hubs. If that layer keeps thinning out, the headline numbers will eventually catch up.
For coverage of how state-level policy and federal trade decisions are shaping operating costs, follow our ongoing California Business News reporting.
What Founders Are Doing to Survive
Founders are getting creative. Some are pivoting toward livestream selling, which lets them move inventory without paying for in-person event travel. Others are shifting to wholesale relationships with local boutiques, cutting out shipping costs entirely. A few are reworking product lines to use materials sourced inside California, even at higher unit cost, just to escape import volatility.
None of these moves are full solutions. They are survival tactics. As long as tariff policy stays unpredictable and the situation in the Middle East keeps fuel prices elevated, California’s small business owners will keep making the same hard choices: produce less, charge more, or take on debt.
The Bottom Line
The story of California’s small businesses in 2026 is not just a story about tariffs or about a war overseas. It is a story about how thin the margins have become for the people who actually make and sell things in this state. When two outside shocks land at the same time, the founders absorb the first one and break under the second.
For now, the watchword from California’s port executives, founders, and economic observers is the same: plan for more uncertainty, not less. Stay close to readers in our Business News section as the story develops.
