The Tariff Situation: What Does it Mean for U.S. Retail?

Written By Alex Ogle

Just 2 weeks ago our Tariff post reached the conclusion that the only predictable outcome is…unpredictability. Of course, no one knew exactly what that would mean nor just how quickly things would change.  

As a result of last weekend’s negotiations in Geneva, the U.S. and China have agreed to roll back the previous 145% tariff to 30%.  What will this rate for China and new rates for other countries mean for U.S. retail in the short term?  

April’s “Liberation Day" tariffs saw China and other countries increase to a 145% tariff.  The new policy calls for the introduction of a baseline tariff of 10% on imports from most countries, and higher "reciprocal" tariffs for certain nations. The new policy is in addition to existing tariffs on certain products such as steel, aluminum, and cars. 

Confusion in market and correct rates and way to calculate

Some of the Key Points to understanding the new policy:

  • Baseline Tariffs: A universal 10% tariff applies to most imports, with exceptions for certain countries and products.

  • Reciprocal Tariffs: Higher tariffs are imposed on countries deemed to have significant trade barriers or imbalances with the U.S.

  • Exemptions: Some countries, like Canada and Mexico, have exemptions or reduced rates due to existing trade agreements like the USMCA.

  • Product-Specific Tariffs: Additional tariffs remain on specific products such as steel, aluminum, and automobiles.

These tariff measures are part of a broader strategy to address trade deficits and promote domestic manufacturing. However, they have also led to concerns about potential trade wars and increased costs for consumers and businesses.

How are the U.S. Retailers Responding?

U.S. retailers are responding to current tariff challenges with a variety of strategies aimed at minimizing cost increases, preserving margins, and maintaining supply chain stability. Here are some of their approaches:

1. Diversifying the Supply Chain Make this as Span

  • Walmart, Target, and Home Depot have all made moves to source more goods from Vietnam, India, Mexico, and other Southeast Asian or Latin American countries.

  • Example: Walmart increased imports from India and Vietnam in categories like apparel and home goods to reduce reliance on Chinese suppliers.

2. Negotiating with Suppliers Make this as Span

  • Retailers are re-negotiating pricing and contract terms with existing suppliers to share the burden of added costs.

  • Some are asking suppliers in tariff-affected countries to absorb part of the tariff, especially when long-standing relationships exist.

3. Strategic Inventory Management Make this as Span

  • Front-loading shipments ahead of tariff hikes to stock up at pre-tariff prices has been a tactic for companies like Costco and Best Buy.

  • Others are holding off orders or slowing imports if price volatility is too high.

4. Adjusting Product Assortments Make this as Span

  • Retailers are reducing or phasing out products that are heavily impacted by tariffs, especially if margin erosion is severe.

  • Substituting with similar, tariff-exempt products has helped avoid direct price hikes to consumers.

5. Passing on Cost Increases Make this as Span

  • Companies like Lowe’s and Harbor Freight have acknowledged passing on some cost increases to consumers—but they try to limit it to high-impact categories. 

  • Price hikes are often implemented in a targeted way to avoid harming demand.

6. Lobbying and Trade Advocacy Make this as Span

  • Major retail groups such as the National Retail Federation (NRF) and Retail Industry Leaders Association (RILA) have been lobbying the U.S. government to reconsider or refine tariff policies.

  • Companies like Apple and Nike have directly lobbied for exemptions or delay of specific tariffs.

7. Investing in U.S. Manufacturing or Nearshoring Make this as Span

  • Some retailers are working with suppliers to shift production to North America, especially Mexico or even back to the U.S.

  • Example: Lowe’s has increased partnerships with domestic manufacturers in areas like building materials, millwork, and power tools. 

8. Technology and Automation Make this as Span

  • Retailers are using analytics and AI to better understand cost impact across SKUs and make smarter decisions about product mix, pricing, and sourcing.

  • Example: Retailers are using supply chain visibility tools to assess tariff impact per item, helping guide negotiations and supplier choices.

(Barrons, ABC News, Axios)

Conclusions:

Ultimately, it’s likely consumers will be footing a portion of the bill for the new tariff policies.  The most successful retailers, the ones able to remain relatively margin whole, will be the ones partnering with their vendors, with policy makers, and even their customers in shouldering the impact of this new policy. Even the largest U.S. retailers cannot withstand these levels of cost increases without applying some new efficiencies and hedging against price volatility with new strategies. 

#UStariffs, #Tariffs, #Tariffsituation, #Globaltariffs


NOTES: 

U.S. Tariffs on Chinese Goods

Liberation Day Tariffs (Effective April 2025):

Current Tariffs (Effective May 14, 2025):

Difference:

📦 De Minimis Shipments (Low-Value Parcels)

Liberation Day Tariffs:

Rising Costs and Supply Chain Disruptions

Tariffs as high as 145% on Chinese imports have compelled retailers like Walmart, Target, and Amazon to absorb substantial cost increases. Many had already set pricing before the tariff announcements, limiting their ability to adjust prices accordingly. This situation is straining supply chains, with some retailers canceling orders or facing potential inventory shortages. New York Post+6Wikipedia+6CBS News+6New York PostCBS News

Retailers are also grappling with decreased product variety. The high tariffs have led to canceled purchase orders and reduced inventory depth, particularly in sectors like toys and apparel, which heavily depend on imports. Business Insider

Strategic Responses by Retailers

To mitigate the impact, retailers are employing various strategies:

  • Absorbing Costs: Some retailers are choosing to absorb the increased costs rather than passing them on to consumers, aiming to maintain customer loyalty. Forbes

  • Negotiating with Suppliers: Retailers like Walmart and Target have instructed Chinese suppliers to resume shipments, with the retailers covering the tariff costs. Grocery chain Albertsons, however, has stated it will not accept tariff-related price hikes from suppliers. SeafoodSource

  • Exploring Alternative Sourcing: Companies are seeking to diversify their supply chains by sourcing products from countries not affected by the tariffs, though this transition poses logistical challenges.

Impact on Specific Retailers

  • Walmart: Despite a successful 2024, Walmart faces uncertainty in 2025 due to potential price increases from tariffs. The company is committed to maintaining low prices and is exploring new sourcing options to offset tariff impacts. AP News+1Axios+1

  • Target: Target has warned that tariffs could negatively impact sales and profits, particularly affecting imported fruits and vegetables. The company's share price has already seen a decline in response to these concerns. Axios

  • Costco: While Costco reported sales growth in April, the company acknowledges that customers might remain cautious due to inflation and tariffs. Efforts are underway to mitigate tariff impacts and maintain customer value. MarketWatch+1MarketWatch+1

Broader Economic Implications

The tariffs are contributing to broader economic uncertainty, with potential increases in consumer prices and reduced product availability. Analysts warn that these factors could lead to decreased consumer spending and a potential slowdown in economic growth. 

In summary, the heightened tariffs are placing significant pressure on major U.S. retailers, prompting strategic adjustments to navigate the challenging economic landscape.


Alex Ogle
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