Some brands, particularly small businesses, are laying off customer service agents or scaling back outsourced call center contracts in favor of AI chatbots as part of broader efforts to offset tariffs imposed this year by the Trump administration.

That’s the case for Greg Shugar, who runs Beau Ties of Vermont, a Vermont-based company that makes woven silk jacquard neckwear and accessories and sells them through both direct-to-consumer and wholesale channels. Although all of Beau Ties’s products are made in the U.S., its silk, requiring a specific looming method, comes from China, one of the most heavily tariffed countries. As such, Beau Ties is incurring hundreds of thousands of dollars in duties.

Like many executives at tariff-hit businesses, Shugar has already raised prices on his products by as much as 20%, cut non-essential expenses, like tech subscriptions, reduced two full-time production employees to part-time and stretched working capital by stockpiling inventory in the U.S. ahead of tariff deadlines.

But it wasn’t enough.

Beau Ties of Vermont recently laid off one in-house customer service rep, shrinking the department to three. Now, more queries are being automated through an AI agent powered by Zendesk. (The company is currently in the process of switching to a new software called Gorgias.)

“There are all these articles about what AI is going to take first, and customer service is definitely one of those things,” Shugar said. “We are all trying to lean heavier on AI to do our customer service because the truth is 80% of your customer service tickets ask the same small group of questions.”

He’s not alone. More brands are turning to chatbots and other AI-powered customer service tools to counteract rising expenses, according to Puneet Mehta, CEO and founder of Netomi, which provides AI chatbots for brands like Tapestry, Harry Rosen and Zinus.

“Brands are accelerating their use of AI agents to handle a larger share of routine service work, especially as operating costs rise due to new tariffs and inflation,” Mehta told Modern Retail in an email statement. “In live production, we consistently see AI resolving around half of all incoming tickets. That is the point where companies can safely reduce outsourced headcount without compromising customer satisfaction.”

Bots fill the gap

Luke Barkley Young, CEO of the home goods startup Outlines, which sells recyclable shower liners, said tariffs have forced him to raise prices to counteract the cost of tariffs, particularly duties on imports from China, which are currently subject to a 30% combined tariff rate. But that alone hasn’t offset the levies. Outlines, which has historically outsourced customer service queries to a third-party agency, now uses an AI chatbot that handles up to 70% of support tickets, saving the company about $5,000 a month.

Trump’s tariffs “actually cost Americans jobs,” Young told Modern Retail in an interview.

Other brands are preparing to follow suit. Although Made In has been manufacturing in the U.S. since its founding in 2017, the company relies on imported steel to make its pots and pans. Tariffs on imports of steel and aluminum, initially set at 25% and 10%, respectively, have been raised to a uniform 50% for most countries. The added costs forced Made In to implement a hiring freeze earlier this year.

While Made In currently uses a mix of in-house customer service reps, and outsourced customer service agents, the Austin-based company plans to start testing an AI customer service chatbot within the next six months.

Jake Kalick, Made In’s president and co-founder, considers AI adoption “pretty likely” for the company, beginning with “super transactional, easy-to-execute tasks and questions where a customer may not care if it’s a human touch.” Kalick said he expects AI to handle at least 20% of customer service tickets. “Anything north of 20% would be well worth the time and investment,” he said.

Kalick doesn’t expect AI to fully replace humans, but said it will “certainly reduce” reliance on outsourced agents, especially during the holiday rush, when the company receives thousands of support tickets a day.

“You’re either carrying this incredibly bloated customer service org for 75% of the year just to be ready for your holiday season, or you have something that’s incredibly scalable, like an AI bot,” Kalick said. While AI will ease pressure, he added, “we will still see the number of agents growing because the business is growing. But again, a lot of these tickets can be handled by AI agents.”

Softening labor market

The increased demand for AI-powered customer service comes as the Trump administration on Thursday released adjusted reciprocal tariff rates on top a range of trading partners. A universal tariff of 10% will remain for countries with which the U.S. has a trade surplus, and there will be a 15% floor for those with a deficit. Trump also said tariffs on Canada will rise to 35%.

The push toward automation comes as the labor market softens. The U.S. economy added 73,000 jobs in July, with previous months revised sharply downward, according to a Bureau of Labor Statistics report released Friday. Payrolls have risen by just 35,000 on average over the last three months, the weakest pace of hiring since the pandemic in 2020. The unemployment rate increased to 4.2% in July.

Lisa Popovici, president and co-founder of Siena AI, which provides chatbot services, has noticed “an increase in demand” this year as fears around tariffs and economic uncertainty mount. “When there’s so much uncertainty in the market, brands are starting to realize that AI can be one of their saviors,” Popovici said.

Major retailers have acknowledged that advancements in AI will lead to fewer jobs. In June, Amazon CEO Andy Jassy told employees that AI adoption would lead to future workforce reductions at the company. In May, Williams-Sonoma CEO Laura Alber told investors that the company was “committed to staying lean on headcount using AI tools to drive productivity gains.”

About 41% of employers worldwide said they would reduce their workforce in the next five years due to AI, according to a recent World Economic Forum survey.

While AI has raised fears that the technology will eliminate human workers, Popovici said automation can also shift staffers to higher-order tasks.

Indeed, Absolutely Ridiculous, a company that makes softball mitts and other protective gloves, recently adopted an AI agent to handle support tickets through the company Redo, an AI solutions company. As a result Absolutely Ridiculous “reallocated all of their support reps to other roles within the company that focus on company growth,” Redo’s head of marketing, Brandon Thurgood, told Modern Retail in an email. Now, one intern monitors the brand’s support tickets.

Still, the move invariably means the company doesn’t need to increase its headcount to fulfill additional roles.

“It helps Absolutely Ridiculous save money because they were roles they needed to hire for externally to keep pushing growth,” Thurgood said. “They were able to promote from within instead of hiring externally and meet hiring needs without increasing headcount.”