Retailers — even large chains — are starting to respond to the weight of the current US – China tariffs.
During the last earnings reports, a total of 29 companies on the S&P 500 mentioned “tariffs.” Last year, tariffs were only mentioned by seven companies. Along with a plea from footwear industries to alleviate the weight of the tariffs, companies such as Walmart are beginning to speak out.
Let’s take a closer look at how the Trump Administration’s trade wars are impacting some of the country’s largest retailers — which are also some of the largest employers.
Nearly Every Retailer is Impacted by the Tariffs
Many companies import goods from China. Target imports 34% of its products, while Walmart imports 26%. And big box retail isn’t the hardest area hit. Footwear companies import over 70% of their goods from China.
The 25% tariffs are expected to impact $200 billion of Chinese-sourced products. This includes consumer electronics, industrial chemicals, health and safety products, and some child safe furniture.
Apple is among the manufacturing companies hardest hit by the tariffs, which will also impact stores such as Best Buy. Apple products account for up to 20% of the sales for the electronics chain.
Understandably, there’s very little support for these tariffs, and many companies have spoken out against them. Yet, it may not be bad news for every company. In fact, some companies may ultimately find themselves pulling ahead as a result of these tariffs.
The True Cost of the Tariffs Have Not Yet Been Seen
Up until recently, most businesses have been absorbing the cost of the tariffs on their own. They aren’t interested in hiking up prices on consumers, as this can dissuade business from coming in. For a company such as Walmart, low prices are a major selling point. Damage to their brand perception could take significant effort to recover from.
However, this can only last so long. Businesses can either continue to absorb the costs or pass those costs onto the consumer. Consumers may soon see general retail prices being hiked up, which may have a depressive effect on the economy.
Big Box Stores are At an Advantage
Though the tariffs are being levied against many retailers, stores such as Walmart, Target, and Macy’s have a significant advantage over smaller stores. Since big box stores sell a large variety of items, they have more items to spread their profit over — and a higher likelihood of stocking items that are not experiencing high tariffs.
Smaller stores and stores that carry only a single type of product are going to be the ones that are most impacted by these changes, as they won’t be able to adjust or float the costs. Tariffs may see smaller companies going out of business, which could ultimately be better for some of the big box companies.
And, of course, companies that already don’t import their products from China are likely to see the price gap between their products and their competitor’s products shrink. Some retailers which focus primarily on American-made products may find their client base rise.
The Future of the Tariffs Are Unknown
While retailers are planning ahead, many of them aren’t sure exactly what they’re planning for. The state of the tariffs is somewhat unknown, with tariffs being threatened multiple times, but not yet enacted.
In addition to tariffs against China, the tariffs against Mexico may continue to rise. This may do significant damage to industries such as the automotive industry. These tariffs will impact a wide spread of the country’s commerce. The changing nature of these tariffs can make it difficult for companies to move ahead with their current strategies.
At the same time, these tariffs haven’t had significant impact on the economy as of yet, as trade actually constitutes a fairly small portion of the global marketplace. Consumers are likely to be the hardest hit, as well as some small businesses, but it remains to be seen to what extent.
Regards,
Ethan Warrick
Editor
Wealth Authority
