Hawaii Businesses Face Immediate Margin Squeeze: 86% Report Tariff-Driven Cost Increases
A recent survey indicates that a substantial majority of Hawaii businesses are already grappling with increased operational costs and foresee significant profit declines due to tariffs. This situation demands an urgent re-evaluation of pricing, sourcing, and operational strategies to maintain solvency and competitive positioning.
The Change
Data from a survey of 155 Hawaii businesses, conducted by Pacific Business News, highlights a pervasive impact of tariffs. The findings, released in February 2026, indicate that 91% of surveyed businesses are reporting higher costs. Critically, nearly half of these businesses (46%) expect their profits to drop by over 10% as a direct result of these increased expenses. This trend suggests that the inflationary pressures from international trade policies are materializing rapidly within the state's isolated economy, affecting businesses across various sectors.
Who's Affected
Small Business Operators (Restaurants, Retail, Services)
Small and medium-sized businesses, particularly those reliant on imported goods for inventory, ingredients, or operational supplies, are on the front lines. With 86% reporting higher costs and 46% expecting profit drops over 10%, these operators face a direct threat to their margins. This could necessitate difficult decisions regarding price increases, leading to potential customer attrition, or cost-cutting measures that might impact service quality or staffing levels. For instance, a Honolulu restaurant relying on imported seafood and specialty ingredients could see its cost of goods sold increase by 5-15% within the next quarter if tariffs are passed down directly from suppliers.
Tourism Operators (Hotels, Tour Companies, Vacation Rentals)
While Hawaii's tourism sector benefits from strong visitor demand, the rising cost of goods essential for hospitality operations cannot be ignored. Hotels face higher costs for linens, toiletries, cleaning supplies, and even food and beverage if imported. Tour operators may see increased costs for fuel (though directly impacted by global energy prices, tariffs on imported parts for vehicles can add a layer), equipment, and activity supplies. Vacation rental owners might experience increased utility costs or higher prices for furnishings and maintenance items. A 5-10% increase in operational costs for a Waikiki hotel could translate to a 2-5% reduction in net operating income, pressuring rates and profitability.
Agriculture & Food Producers
Local farmers, ranchers, and food processors may also feel the impact indirectly. While some may benefit from reduced competition if tariffs make imported goods more expensive, they often rely on imported fertilizers, machinery parts, packaging materials, and even specific feed components. Increased costs for these essential inputs will directly affect their cost of goods sold, potentially offsetting any gains from a more favorable competitive landscape. For example, a Big Island coffee farmer using imported fertilizers and specialized processing equipment parts could face a 3-8% increase in their overall production costs.
Entrepreneurs & Startups
For startups and scaling businesses, increased operational costs and the risk of profit erosion introduce significant headwinds. Uncertainty in input costs makes financial forecasting more challenging, potentially impacting valuation and the ability to secure funding. Founders may need to demonstrate enhanced operational efficiency and pricing strategies to investors who are now scrutinizing margins more closely. A tech startup relying on imported hardware components or specialized software licenses could see its burn rate increase, shortening its runway if revenue growth doesn't keep pace.
Investors
Investors in Hawaii-based businesses should anticipate a period of elevated risk and potential for reduced returns. The survey data suggests a widespread impact across sectors, indicating a potential systemic challenge rather than isolated incidents. This could lead to more cautious investment strategies, a focus on businesses with strong pricing power, robust supply chain management, or a domestic sourcing advantage. Companies with high import reliance may face increased scrutiny regarding their financial resilience and ability to adapt to ongoing trade policy shifts.
Second-Order Effects
The interconnected nature of Hawaii's economy means that tariff-driven cost increases can trigger a cascade of effects. Higher import costs for businesses → Reduced profit margins → Pressure to increase prices for goods and services → Potential decrease in consumer purchasing power and tourist spending → Slower local economic growth and reduced business expansion opportunities. Furthermore, sustained pressure on small businesses could lead to decreased local employment and wages, impacting the cost of living and the viability of certain sectors.
What to Do
Small Business Operators
Act Now: Conduct an immediate review of your Cost of Goods Sold (COGS) and operating expenses. Identify all imported components, ingredients, or supplies that may be subject to tariffs. Explore alternative domestic or local suppliers where feasible. Re-evaluate your pricing strategy; consider targeted price increases on specific products or services or implement a small, across-the-board price adjustment rather than absorbing the full cost. Analyze your inventory levels to avoid holding excessive stock of goods with potentially rising import costs. For businesses with significant import reliance, consider diversifying your supplier base to mitigate future shocks.
Tourism Operators
Act Now: Review contracts with suppliers for goods and services that might be affected by tariffs. Engage with your procurement team or management to identify potential cost increases in food, beverages, linens, amenities, and maintenance supplies. Explore opportunities to source more goods locally if possible, or negotiate longer-term contracts with existing suppliers to lock in current pricing. Assess the elasticity of demand for your services; determine if modest price adjustments are feasible without significantly impacting occupancy or booking rates. Focus on enhancing guest experience through non-monetary value to justify any necessary price increases.
Agriculture & Food Producers
Act Now: Quantify the impact of tariffs on imported inputs such as fertilizers, feed, machinery parts, and packaging. Investigate alternative local or domestic suppliers for these inputs. Explore opportunities for agricultural co-operatives to pool purchasing power for imported goods to potentially negotiate better terms. Review your own product pricing to ensure it reflects the increased cost of production. Investigate government programs or incentives designed to support local agricultural businesses facing rising input costs.
Entrepreneurs & Startups
Act Now: Re-evaluate your financial models and projections, incorporating realistic forecasts for increased operational costs due to tariffs. Clearly articulate to investors how your business plans to mitigate these cost increases, whether through operational efficiencies, strategic partnerships, or pricing adjustments. Secure additional working capital if your cash runway might be shortened. Focus on demonstrating resilience and adaptability in your business plan to potential investors.
Investors
Watch: Monitor the financial performance of companies in your portfolio for signs of margin compression due to tariff impacts. Pay close attention to companies with significant import reliance and assess their strategies for cost mitigation and pricing power. Look for opportunities in businesses that benefit from tariffs (e.g., domestic substitution) or have strong control over their supply chains. Assess the overall impact on consumer spending and tourism demand within Hawaii as rising costs potentially affect disposable income.
