5 things to know about tariffs

By Jonathan Gold – VP, Supply Chain & Customs Policy

Retailers strive to deliver a wide selection of affordable products every day to their customers. However, they also rely on products imported throughout international supply chains to offer American consumers high quality goods at a variety of price points. As policymakers consider a number of trade proposals, it’s important to know the significant impact tariffs will have on retailers, consumers and the U.S. economy.

What is a tariff?

Tariffs are a tax on goods imported into the United States and are paid for by the U.S. importer. Tariffs are just one of several trade policy tools available for policymakers to achieve a successful diplomatic outcome. They are intended to raise the cost of imported goods, making them less competitive compared with domestically manufactured products.

When tariffs are enacted, retailers are forced to choose between raising their prices or relying on already slim profit margins to absorb the increased cost of inventory.

What announcements has the Trump administration made regarding international trade and tariffs?

At the start of his second term, President Trump signed three Executive Orders placing a 25% tariff on imports of goods and a 10% tariff on energy resources from Canada, a 25% tariff on imports from Mexico, and a 10% tariff on imports from China.

While the 10% tariffs on China went into effect on Feb. 4, the proposed tariffs on Canada and Mexico were temporarily delayed until March 4 because the countries agreed to take action to stem the flow of illegal immigration and fentanyl into the U.S. The delay also provided time for additional negotiations among the parties to further address these issues.

Tariffs

NRF is committed to pursuing a trade policy that holds our trading partners accountable, enhances U.S. competitiveness and protects American households from inflationary price increases on everyday household goods.

On March 3, President Trump announced that the Canada and Mexico tariffs would take effect on March 4. He also announced an additional 10% increase in the China tariffs, also effective on March 4.

On Feb. 10, the president signed two new proclamations placing 25% tariffs on imports of steel and aluminum products, including downstream products. The proclamations reinstate the previous Section 232 tariffs that were implemented during the first Trump administration (25% steel, 10% aluminum), but increases the aluminum tariffs to 25%. The tariffs are set to take effect on March 12. They also remove the previous country exemptions and product exclusions that had been granted.

Additionally, on Feb. 13 the administration announced its “Fair and Reciprocal Plan” on trade that seeks to examine non-reciprocal trade relationships with U.S. trading partners and determine the equivalent reciprocal tariff to address trade imbalances. Initial reports are due April 1, which could lead to new investigations on a variety of trade issues. While this scale of undertaking is massive, it will likely result in higher prices for American consumers and will diminish spending power.

On Feb. 25, the president ordered a Section 232 investigation into how copper imports threaten America’s national security and economic stability. This investigation will assess the national security risks arising from the United States’ increasing dependence on imported copper, and the potential need for trade remedies to safeguard domestic industry.

On March 1, President Trump ordered a Section 232 investigation to determine the effects on the national security of imports of timber, lumber and their derivative products (paper, furniture, etc.). The investigation will include recommendations on actions to mitigate such threats, including potential tariffs and policy recommendations for strengthening the United States’ timber and lumber supply chain.

President Trump has also threatened a number of different industries (auto, pharmaceuticals, semiconductors, agriculture products) and regions such as the European Union with additional tariffs as well, potentially taking effect on April 2.

How do these tariffs impact the retail industry?

Retailers and other U.S. businesses rely on imported products — both component parts and finished goods — from a number of trade partners to provide consumers with a wide variety of affordable everyday goods. Tariffs are taxes paid by the U.S. importer. Unfortunately, they tend to increase the overall cost of products that American consumers want and need.

Small and medium-sized businesses will be disproportionately affected by tariffs, with many saying they will have to raise prices. Unable to absorb the cost of increased tariffs, small business retailers would be forced to pass those additional costs along to their customers in the form of higher prices.

What are retailers doing to mitigate the additional costs caused by tariffs?

Retailers have been preparing for a variety of tariff scenarios for many months. Some have front-loaded cargo in advance of the tariffs, while others continue to seek alternative solutions to diversify their supply chains.

Retail supply chains are incredibly complex. Sourcing different products and their components is not an easy or quick process and can take years and significant investment to move operations. Additionally, some products simply don’t have the capability or workforce available to support domestic manufacturing. In addition, many small retailers are indirect importers and rely on other companies to import the products that they sell. These indirect importers have even less ability to shift their supply chains to mitigate tariff costs.

Retailers need predictable and reliable supply chains. Uncertainty and disruption to supply chains increases inflation and costs.

What do these tariffs mean for U.S. consumers and the economy?

A tariff is a tax paid by the U.S. importer, not a foreign country or the exporter. This tax ultimately gets passed on to consumers through higher prices. Canada, Mexico and China are our top three trading partners — accounting for more than 40% of total trade and 5% of U.S. GDP — so the impact is profound and hard to escape if the tariffs remain in place for more than a few months.

According to the Tax Foundation, the 25% tariffs on Canada and Mexico and 10% tariffs on China would shrink GDP by 0.4% and increase taxes on consumers by $830 in 2025.

No matter the demographic, consumers are concerned about higher prices, rising inflation and getting less while paying more. Tariffs are just one tool at the administration’s disposal to address trade disputes, and NRF urges it to explore other tools that can achieve the same goals. As long as these tariffs are in place, American businesses, consumers and the economy will bear the brunt through higher prices on everyday goods.