So, how about those tariffs? You know, the ones imposed on goods imported from China. They started out at 10% but, as recently announced, will jump up to 25%. What kind of affect will these tariffs have on companies who import consumer goods from China on a regular basis?
When asked what the biggest issue was, most companies surveyed pointed to the lack of a clearly defined timeline for imposing the tariffs which prevented them from planning their inventory levels to minimize the impact of the added expense and maximize profit. When the tariffs were first announced, companies built up their inventory to minimize the cost impact. However, the implementation of the tariffs was put off, leaving companies sitting on tens or hundreds of thousands of dollars of excess inventory. Now that the tariffs are set to rise to 25% with a week’s notice, what strategy (if any) can be implemented to avoid a hit to the bottom line from either absorbing the increase or losing customers to rising prices?
Speaking of rising prices, several companies noted that with the 10% tariff, customers and suppliers were willing to share and absorb the additional cost without passing it on to the consumer. All of that will change with the 25% tariff, where the additional costs will have to be passed on to the consumer. We can expect our costs to rise as the tariffs are implemented.
One aspect overlooked in our discussion was the retaliation by countries affected by the tariffs. China, Mexico, Canada, and the European Union all imposed retaliatory tariffs on goods exported to those countries. Soybean farmers, dairy farmers, Harley Davidson and many other industries/companies are being impacted by the retaliation.
Will the tariffs result in a re-balancing of the trade deficit? Only time will tell.