We expect most retail holiday items to be more expensive this year due to normal inflation, which is now running at 3%, as well as increased tariffs, including the elimination of the de minimis 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, clothing, and household goods we purchase. These countries also bear some of the highest tariff rates imposed this year.
We expect these higher prices to dampen holiday sales marginally this year. However, employment in the U.S. remains relatively strong, meaning that most consumers still have reasonable purchasing power, which we expect to support holiday shopping this season.
It appears that U.S. retailers have done nearly everything in their power to keep from passing new tariffs on to their customers. Many importers have passed on portions of the tariffs to their suppliers abroad and are shouldering some of the costs themselves. Others had stockpiled inventory before the tariffs took effect and have been working 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 ecommerce retailers that reach their customers through ecommerce 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 greater pricing power in a market that, for many de minimis-impacted products, has become uneconomic to produce in the United States. However, some U.S. manufacturers could be affected if components they previously sourced abroad now fall outside the de minimis exemption.
What Businesses Can Do:
U.S. businesses that import critical goods should assess whether they can source them domestically or 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. Acting quickly to shift production between countries could prove valuable if certain countries, such as China, face stiffer tariffs than neighboring countries with similar production capabilities.
