Most retail holiday items are expected to be more expensive this year due to normal inflation, now running at 3%, as well as increased tariffs, including the elimination of the de minimus tariff rule* (see below). We expect tariffs to have the greatest impact on retail items imported from China and other Asian countries, which have traditionally manufactured many of the toys, clothes, and household items we purchase. These countries also bear some of the highest tariff rates imposed this year.
[The good news is that] employment in the United States remains relatively strong, meaning that most consumers still have reasonable purchasing power, which we expect to support holiday shopping this season.
U.S. retailers have seemingly done nearly everything in their power to keep from passing new tariffs on to their customers. Many importers have forced portions of the tariffs onto their suppliers abroad and are shouldering some of the tariffs themselves. Others had stockpiled inventory before the tariffs took effect and have been working their way through it. However, in the coming months, we expect to reach the limits of these strategies and expect prices to rise to reflect the true cost the tariffs have imposed.
*De Minimis Rule
President Trump’s executive order repealing the “de minimis” tariff rule is poised to have a significant impact on a wide range of small businesses. Some of the most impacted will be small e-commerce retailers that reach customers through e-commerce platforms such as Amazon, Etsy, eBay, or Shopify. While many of these retailers are domestically owned and operated, many others operate from overseas and have used the previous $800 de minimis limit to flood the U.S. with incredibly low-cost consumer goods, including clothing, electronics, beauty products, home goods, and toys.
Impact on the Supply Chain
In addition to retailers, shipping and logistics companies will now have to handle increased processing workloads, which adds cost and slows delivery times. Tariffs also impose additional work on customs agents at the point of entry. This can slow the movement of goods through the supply chain.
On the flip side, domestic manufacturers should benefit from less competition and the ability to achieve pricing power in a market that, for many de minimis-impacted products, has become uneconomic to produce in the U.S. However, some American manufacturers could be impacted if the component parts they had previously sourced abroad now fall outside of the de minimum exemption.
What Businesses Can Do
U.S. businesses that import critical goods from abroad should determine if it is possible to source these goods domestically or to vertically integrate their supply chains to produce them domestically. If domestic production proves uneconomic, business owners will need to pay close attention to the tariffs being levied and which countries they are impacting most. Working quickly to shift production from one country to another could prove valuable if certain countries, such as China, face stiffer tariffs than neighboring countries with similar production capabilities.
Ben Johnston is the COO of Kapitus, a small business lender and marketplace.
Photo courtesy Markus Winkler via pexels
