Proposed tariffs could raise prices for consumers | Global News Avenue

For retailers and consumers, the easing of inflation is finally felt, President-elect Donald Trump’s tariff proposals Analysts said Wednesday that his presidency has created new uncertainty about how prices might change.

Trump on NBC News win second term During his presidential campaign, Trump said he would impose tariffs of 10% to 20% on all imported goods, including tariffs of up to 60% to 100% on goods from China, thus achieving a decisive victory.

Businesses, retail trade groups and industry analysts have warned that the move could drive up prices on items ranging from sneakers to party supplies that Americans buy.

“Implementing sweeping tariffs on consumer goods and other non-strategic imports would amount to a tax on American households,” Matthew Shea, chief executive of the National Retail Federation, said in a statement Wednesday. “It would drive up inflation and prices. rise and lead to unemployment.”

Earlier this week, the NRF released a study on the impact of Trump’s proposed tariff hikes and said it would lead to “dramatic” double-digit percentage increases in prices across nearly all six retail categories reviewed by the trade group. of rise. These categories include clothing, footwear, furniture, home appliances, travel items and toys.

For example, the analysis found that clothing costs could rise by 12.5% ​​to 20.6%.

The CEO of Elf Beauty, which mainly relies on China to produce beauty products, told CNBC in an interview Wednesday It could be forced to raise prices if proposed tariff increases take effect.

“We do have pricing power. If we think we need to take advantage of pricing, we will,” said Elf CEO Tarang Amin. “It’s going to depend on how we feel about the tariffs. It depends on the magnitude of the tariffs.”

Neil Saunders, managing director at GlobalData, said in a research note on Wednesday that higher tariffs would cause “huge headaches” for retailers, who are likely to pass those costs on to consumers. The result could be even weaker spending by already price-conscious shoppers.

“Despite Trump’s claims to the contrary, tariffs are paid by the company or entity that imports the goods, not by the country itself. This means the cost of purchasing products from overseas, whether purchased directly or as a manufacturing Investment will rise sharply,” he said. Sanders.

“Given the trade between Chinese manufacturers and U.S. retailers, strict tariff policies will mean that retailers will either take a huge profit hit initially or be forced to raise prices, which will increase inflation and depress retail volumes,” he said. increase.”

Over time, supply chains will adapt to this change in tariff policy, but it will be “incredibly disruptive” in the short term, Sanders said.

“The small hope is that the tough talk on tariffs is more of a negotiating tactic and the eventual implementation will be relatively mild in scope,” he said.

in a Bank of America Retail analyst Lorraine Hutchinson said the research report showed Five or less, Crocs, Skechers, Amer Sports and American Eagle Outfitters The risk is higher because 20% or more of their goods come from China. As a result, she downgraded the Five Below stock Neutral to underperformingsaying the company does not have “the pricing power to mitigate high tariffs.”

On the other hand, companies like Bath and body care services Hutchinson said the company sources about 85% of its products from North America, making it less vulnerable.

She said Trump-backed corporate tax cuts could benefit retailers, but higher tariffs would outweigh those savings.

Deep discount stores, e.g. dollar treeThese companies are also at risk because their fixed-price-point business models make it difficult to pass on higher prices to customers, said Peter Keith, senior research analyst at Piper Sandler. The store sells non-essential items such as toys and party hats, with many items imported from China and priced at $1.25. That means the company needs to either absorb higher costs or change its pricing model entirely, he said.

Bank of America also downgraded its rating Yeti Holdings Downgraded to Neutral from Buy due to its higher exposure to China. However, unlike Dollar Tree, its fan following and higher profit margins may give it enough of a cushion to absorb cost increases or raise prices.

Piper Sandler’s Keith noted that Yeti’s 20-ounce glasses typically sell for $35, but the company’s profit margin on the product is about 60 percent.

Additionally, Yeti and other companies are already working to diversify their supply chains and move manufacturing outside of China to reduce reliance on the region and its risks. Yeti has pledged to move about half of its production outside of China by the end of 2025.

CEO Amin said Elf has taken a similar approach.

“Back in 2019 when the 25% tariffs were imposed, almost 100% of our production was in China,” Amin said of the tariff hikes Trump implemented during his first presidential term. “We’ve been diversifying so we have supply in other parts of Asia, the United States, Europe. So right now less than 80% of our supply comes from China, and I expect it will be a little less.” Even less going forward. ”

Part of Elf’s value proposition is its ability to offer high-quality products at discounted prices, but Amin said he’s not worried about consumers buying at reduced prices if the company ends up raising prices. He mentioned its popular lip oil, which sells for $8, and its closest equivalent: Dior’s Lip Gloss Oil, which sells for $40.

“I even told our team, why are we pricing it at $8? We should be pricing it at $10,” Amin said. “So maybe I’ll get the opportunity now, but we’ll see.”

For consumers, as inflation cools, tariffs could cause a bigger price hit on purchases ranging from car repairs to toys. Some companies, including automatic zonehave told investors they will raise prices to cover the additional costs.

“If we impose tariffs, we will pass on those tariff costs to consumers,” AutoZone CEO Philip Daniele said on an earnings call in late September. He said the company typically raises prices before tariffs take effect.

Thanks to the tariffs, customers can also pay more for a six-pack of beer, a bottle of Scotch, or even a pack of Oreos.

Analysts at equity research firm TD Cowen identified a number of companies at risk, including constellation brand, Produces Corona Extra and Modelo Especial beers; liquor company Diageo, Importing tequila from Mexico and Scotch whiskey from Scotland; and Mondelēz, The company produces some cookies and snacks in Mexico.

Matt Priest, CEO of the National Footwear Distributors and Retailers Association, said adult and children’s shoes would also be more expensive if Trump’s proposed tariffs go into effect. nike, Walmart and other members.

He said that about 99% of all footwear sold in the United States is made overseas, and even with cost penalties, it would be difficult to move much of the production back to the United States.

“We also doubt that there is a way to find a way to produce 2.5 billion pairs of shoes in the United States every year,” he said.

“Inflation is coming down,” he said. “When consumers are telling us all politically and from a consumer perspective, then turning around and pulling one of the inflation levers, which is additional tariffs, is going to be counterproductive. Viewpoint: ‘We don’t want higher prices.’ “