First, there are not necessarily increased margins, the margins may stay the same or even decrease. Some companies may choose to keep their margins the same, in which case profit would increase.
But importantly your _profit_ will not decrease, you'll defend that as the seller even if that means your margins decrease.
Second, small companies are _more_ sensitive to taxes (costs), not less sensitive. Existing, large players are better able to absorb costs _and_ command stronger pricing power relative to new entrants to the market.
But overall, your view of the "market" just doesn't play out in reality. You can go look at any industry that encountered tariffs in Trump's first term, you may also look at any consolidated market in the last twenty years. Market power has been heavily concentrated, regulatory capture has gone up, and the result is that markets aren't working as you may expect.