Tariff Uncertainty: How the Threat of Higher Duties Is Reshaping U.S. Business Strategies

Since the original publishing of the following article, the Trump administration confirmed it is imposing a 25% tariff on Mexican and Canadian imports and a 10% tariff on goods from China, effective February 1, 2025.

Although President Donald Trump’s return to the White House has not come with the kind of blanket tariff raises he discussed in his campaign, the threat of additional duties is already costing businesses in the United States money. The ongoing uncertainty will remain as the administration arrives at its comprehensive trade policy.

Many observers believe that the President’s stated intention of raising tariffs generally and boosting them even more significantly in some instances – with China the target of the highest proposed duties at up to 60% – has always been a negotiating ploy. Still, the threat has forced retailers, their suppliers and others in industries that can affect storerunners, such as construction, to push their supply chains harder and deliver goods that might be hit with heavy tariffs into inventory before elevated duties potentially take effect.

Uncertainty remains, with the threat of higher tariffs against Colombia for its initial refusal to accept migrant deportation flights a case in point. Although the dispute was settled, the threat of tariffs to gain political leverage brings further concern retailers and others must weigh as they import goods.

Concerns about blanket tariffs Trump threatened while on the campaign trail have eased for the moment.

In a memorandum from the President’s office dated January 20 entitled America First Trade Policy sent to agencies across the U.S. Federal government, including the United States trade representative, the management and budget director, and the secretaries of commerce, defense and the treasury, President Trump stated, “I am establishing a robust and reinvigorated trade policy that promotes investment and productivity, enhances our nation’s industrial and technological advantages, defends our economic and national security, and, above all, benefits American workers, manufacturers, farmers, ranchers, entrepreneurs and businesses.”

He directed the agencies to investigate national trade policies regarding unfair and unbalanced trade that affect or come under the authority of their auspices. Agencies involved must also consider economic security and economic and trade relations with the People’s Republic of China.

IHA Government Affairs representative Craig Brightup, CEO of The Brightup Group, said the incoming Trump administration would be unresponsive to industry opinion on tariffs, at least initially, because the President always intended to use them as a bargaining tool as he did in his first administration.

“However, lobbying for tariff restraint could gain traction with the new administration if Trump follows through on his threatened tariffs, and it quickly becomes clear they are inflationary,” Brightup said. “IHA belongs to an enormous business coalition that’s opposed to tariffs called Americans for Free Trade. AFT has sent well-crafted letters to the White House, Capitol Hill and the agencies concerning tariffs, and its solid reputation with House and Senate members could help put the brakes on some tariffs. For example, a number of Republican Senators have already expressed their opposition to Trump’s proposed 10%-20% across-the-board tariffs on all imported items.”

Brightup pointed to comments by Trump’s nominee for Treasury Secretary, Scott Bessent, who has suggested that the President-elect’s threats to impose significant tariff hikes have been part of his negotiating strategy, describing it as “escalating to de-escalate.”

International transport is among the rising costs, although not exclusively due to anxiousness about tariffs. Shipping spot rates have increased as retailers and others have tried to hedge against multiple disruptions. Now that the International Longshoremen’s Union and dock runner United States Maritime Alliance have reached an agreement that has taken a January 16 port strike on the East and Gulf coasts off the table, conditioned on a vote by ILA members, and the holiday stock-up season has passed, disquiet around tariffs and the Lunar New Year, with its factory closings in China, will have the primary influence on freight rate levels, said Craig Akers, executive director of the International Housewares Shippers Association, who noted that post-holiday freight rates remain elevated and are likely to remain so at least until after the Lunar New Year.

Weighing the Odds

If shippers make sourcing changes, which tariffs may prompt them to do, carriers will only protect what’s contracted, making adjustments to ease the burden of steady customers. Still, they aren’t likely to accommodate those who prefer the spot market.

In a report on the subject, Coresight Research pointed out that a 60% tariff on Chinese imports and a 10%–20% tariff on products imported from other U.S. trading partners, if they arise, will likely prompt significant immediate price hikes in specific sectors. The proposed tariffs on China, Mexico and Canada would involve 40% of import volume with substantial effects on the automotive, apparel and footwear, electronics, food and beverage, and toy sectors rather than occurring generally. Coresight suggested that housewares and home furnishings would be hit as well.

Coresight cited Wayfair as among the major U.S. retailers that will probably have to raise prices if high tariffs fall into place, along with Best Buy, Lowe’s Cos., TJX Cos. and Walmart. Many such retailers have maintained that they have plans to shift supply or production from China to other low-cost production regions to escape tariffs if imposed on exports from the country. At the start, tariffs would create a margin squeeze as retailers worked out where to raise prices and where to make marginal changes or hold the line on cost to the consumer. As such, they will face the same dilemmas they did as inflation became more severe a couple of years ago and make marginal changes, as was the case as inflation rose.

However, Coresight points out that retailers such as Williams-Sonoma would gain some advantage, as will its less affected suppliers.

In the broader view, the National Retail Federation has estimated that U.S. consumers could lose $46–$78 billion in spending power each year due to higher costs if the highest tariffs proposed are eventually implemented. Additionally, other foreign governments might retaliate if faced with higher duties by imposing their own taxes on U.S. products, another factor that could make goods more expensive for American consumers. Mexican President Claudia Sheinbaum has already said that any new U.S. tariffs would be met with retaliatory duties.

According to NRF, the increased costs generated by the proposed tariffs would be too large for U.S. retailers to absorb. They would result in prices that will pinch consumers, with consumers paying $8.5 billion to $13.1 billion more for furniture and $6.4 billion to $10.9 billion more for household appliances in addition to $2.2 billion to $3.9 billion more for travel goods, $13.9 billion to $24 billion more for apparel, $8.8 billion to $14.2 billion more for toys and $6.4 billion to $10.7 billion more for footwear.

NRF looked at the effect of tariffs based on multiple rate scenarios. In its analysis, the organization noted that current U.S. tariffs on home appliances average 3.7%. The higher tariff proposals would increase duty-related costs to between 38.5% and 65.1%, pushing household appliance prices to increase by 19%-31%. If the highest tariff cost passes through retail to the consumer, the price of a basic refrigerator would climb from about $650 to $776-$852, while a $40 toaster oven would cost $48-$52.

Supply Chain Response

If significant tariff increases come into play, shipping changes will accompany shifts in ports of origin as manufacturing moves to countries with lower tariffs. The changes could also increase shipping rates as goods move from established to new routes.

Still, the worst-case scenario isn’t necessarily the most likely, as the current review suggests. Purchasing and supply chain professionals are responding to the potential for significantly higher tariffs even if they haven’t changed their fundamental outlook for the year ahead, said Steve Miller, chair of the ISM Services Business Survey Committee. Even though much of the rhetoric around tariffs is the administration’s setting up negotiating positions that will address specific issues rather than be broadly applied, purchasing and supply chain managers are keeping careful watch on the situation without necessarily making substantial changes to their operations.

“The more the rhetoric becomes a stream of consciousness, people have to account for it in their risk management activities,” Miller said.

As such, companies that depend on imports have been incurring costs, including pulling goods into inventory earlier than planned, both finished goods and, more critically for some companies, components. They also are, naturally enough, spending money reviewing alternative sources of supply they can develop if tariffs make new sourcing more attractive than paying the duty.

With scheduled trade talks coming in 2026 between the U.S., Canada and Mexico, all parties are settling into their negotiating positions. Given the importance of the commercial relationships, Miller said it’s unlikely that the current trade agreement between the three North American countries will be erased.

“We’re important trading partners,” he said. “We are too important to each other in trade partner relations to blow that up. That would be a huge economic impact to us as well as others.”

Rather than more targeted duties, which Miller said most ISM members believe are more likely, broad tariffs could be immediately problematic. For example, observers are considering the effects on specific businesses, with construction being one they are focused on.

Regarding construction, Canada is the primary exporter of wood and wood products to the United States, according to World Integrated Trade Solution. In 2022, the U.S. imported $28.46 billion in wood products from Canada. A 25% tariff would significantly impact U.S. construction and other industries that rely on wood and related products such as fiberboard. U.S.-based resources are limited and would have to be further developed to fill in for imports from Canada.

No quick supplier import switch is on the horizon, given that WITS lists China as the number two wood products exporter to the U.S. at $10.41 billion. So, a tariff could have an immediate inflationary effect on, among others, a U.S. home-building sector, one already pressured by high interest rates. The potential impact of a severe tariff introduction that has a significant negative effect on construction would impact industries associated with it, including home furnishings and housewares, but also is a factor that suggests compromise would make sense

The situation means the administration and those backing its tariff positions in and out of government might face opposition even from people who have supported duties in theory, especially if moderating inflation on goods begins to tick up again. Inflation was an issue that hurt Democratic prospects in the election. A return to higher inflation rates would likely cause distress and discontent. Then, the need to stock up on components, even for companies already manufacturing and assembling in the United States, creates a cost that, in some cases, may already be passed onto the consumer.

Yet, with all the uncertainty, purchasing and supply chain professionals are not so worried that they have radically altered their perspective on how they will deal with the immediate future, as reflected in ISM research. A survey indicated that cost increases anticipated over the year align with what managers in the purchasing and supply chain expected last year.

“They’re not anticipating a significant tariff impact in aggregate,” Miller said.

In the recent poll of its members, responses suggest that purchasing and supply chain pros have primarily focused on inventory preparation and risk management initiatives, which include having shipping capacity contracted in case of complications. By doing so, they will be in a position to pivot if greater than currently expected disruptions and cost increases occur.

Another less immediate, but for some a substantial concern, is the scope of Trump administration policies, including tax reductions, tariffs and fuel inflation. The question becomes: If inflation ticks up, will the United States Federal Reserve reverse its policy on easing lending rates?

For some industries, rates are a lesser issue, but for housing, real estate and even major appliances, the consideration is more important because so many transactions involve credit. As such, while attention may be greater in some quarters, a wait-and-see attitude, coupled with reasonable precaution, guides ISM member actions, at least for now.

“So there is some worry but not incorporated yet, as we can see in any of the data we’re getting back from the surveys,” Miller said.

The Consequences

If not initially, at least in the mid-term, consumer response to tariffs will likely impact policymakers. According to researcher Morning Consult, the imposition of new tariffs may create more consumer opposition than occurred in 2018, given the distress people have felt due to recent inflation. When tariffs were imposed in 2018, inflation was not much of an issue with consumers in the United States, but that has changed.

Lower- and middle-income consumers have demonstrated more opposition to raising tariffs on household goods than higher earners. They are likely to respond most negatively, given that inflation can erode their buyer power, both everyday and discretionary. As services inflation has recently outpaced price increases on goods, any imposition that drives up the cost of food and/or everyday necessities, whether through a U.S. tariff or trade retaliation from elsewhere, is likely to generate concern and even anger among many consumers.

If significant tariffs occur, said Lisa Anderson of the LMA Consulting Group, which advises businesses on supply chain, some companies may want to reshore sourcing, a goal of tariff imposition. However, businesses reconsidering their sourcing may have multiple options, including nearshoring and friendshoring, which involves moving to suppliers allied to or otherwise on good terms with the U.S. or choosing a low labor cost country with reduced risk. Other actions that companies will review include supplier collaborations to reduce tariff impacts and redesigning products to minimize or eliminate them. Although that will create short-term costs and headaches, businesses will explore ways to dilute the effect of tariffs and the cost to their customers, just as they do when other disruptions threaten supply chains.

From a big-picture perspective, Anderson said that while certainly raising costs, tariffs may be more of a shorter-term challenge and less of a longer-term one.

“The broader supply chain will evolve with changing sourcing strategies,” Anderson said. “However, these changes will take time to roll out. As supply chains evolve, they will maintain dual sources of supply and backup sourcing to ensure customers are served.”

Thus, tariffs may not have a broad, immediate impact. On the other hand, as supply chains evolve, disruptions typically occur due to supply and demand misalignment. If disruptions add cost, some proportion will reach the consumer.

However, because shipping capacity, for example, has increased since the pandemic, the price adjustments may not be significant. If reshoring and nearshoring to places like Mexico increase dramatically over the next several years, ocean freight capacity would place downward pressure on prices in the long term, Anderson said. In that case, the effect of tariffs may not be as much of a rate factor as it is a supply chain issue that will have more or less impact on the consumer, retailers and suppliers depending on how the final costs tally on the range of goods. Short-term pricing increases based on major tariff increases would be likely, but the supply chain will adjust as it did in the COVID pandemic when facing the West Coast port strike and during Red Sea terrorist attacks on shipping.

Additional U.S. investment to balance the risk of tariffs will also become more attractive.

Anderson notes that “executives will evaluate the total cost of their products when considering landed costs, inventory carrying costs, IP theft, coordination of resources, and other considerations. After reviewing the total cost and risk associated with the best options to serve their customers successfully and profitably, they will move their supply chains accordingly. Proactive executives will also review the risks of transporting their products through the end-to-end supply chain and they will evaluate if the country and/or supplier have access to the appropriate natural resources such as energy and water to ensure supply.”

“It will become an opportunity to re-think all decisions related to demand and supply, including customer prioritization, supplier sourcing, strategies to make versus buy, investment in capital, equipment, automation and technology, and opportunities to increase profitability and expand the customer base,” Anderson continued.

From a certain perspective, a higher tariff policy could have a silver lining.