Tariffs' Potential Impact on U.S. Businesses

Tariffs' Potential Impact on U.S. Businesses

When we hear the word tariffs, usually it refers to the taxing of imported goods. But, have we thought about the impact they’ll have on domestic businesses? 

Economists have estimated that if tariffs of at least 15% get imposed on imported foreign goods, it’s probable that U.S. based businesses may get hit just as bad as international competitors and suppliers. Given that this will raise prices for foreign goods, other nations may place retaliatory tariffs on imported goods from the U.S. - thereby reducing U.S. shipments to their international customers too.

Tariffs are a way to drive consumers to purchase more U.S. made goods but they may unintentionally drive up costs to U.S. businesses. Additionally, companies would likely struggle to maintain their current prices on their goods, if tariffs come into play – this will increase pressure on U.S. businesses to raise their prices. Because of some companies’ previous experience with tariffs, they’ve started placing higher demands on domestic manufacturers to prepare what may be ahead. Small businesswoman Laurel Orley states that warehouses have decreasing availability for storing large shipments, as businesses may stock up, before any serious changes reduce their supply. 

While larger companies like AutoZone, Columbia Sportswear, Black & Decker, and especially Walmart, are gearing up for price increases, it’s important to recognize how these changes will affect small businesses. 

Business owner Julie Bednarski-Malik won’t make any serious changes until the tariffs are in place, but she “expects to see prices go up.” On top of everything, small business owners are faced with making the tough decision between whether they will eat-the-cost for the increased prices on their imported goods and services or pass the higher costs off to their customers. 

So, how can your organization offset the effects of tariffs? The best possible solution(s) can begin with reconfiguring pricing strategies to avoid having to pay more than necessary. Companies can also renegotiate with their current sourcing/suppliers (but that can take some time), or they can start by reserving a supply of goods in warehouses to reduce tariff costs. Businesses must consider the effects each of these potential solutions hold. For example, switching to a different supplier may complicate one’s supply chain. For example, if China is supplying 90% of a company’s goods (since China has a larger production capacity) - it might be time to switch to a country that will be unaffected by tariffs, like Vietnam. The main issue remain though, sourcing capacity and development might not be as efficient vs. Chinese suppliers.

Companies need to start planning right now on ways to adopt new sourcing strategies and what could negatively affect one’s own supply channels and overall consumer spending.

Sources:

Who would pay for Trump's promised tariffs? You will! - CBS News

4 Companies Preparing to Raise Prices Under Trump Tariffs - Business Insider

Small business owners brace for Trump's proposed tariffs | AP News

How Trump Tariffs Could Hit Hospitality Supply Chains | Supply Chain Magazine

Supply chain strategies to mitigate tariffs | S&P Global

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