Companies are preparing price increases to offset Trump's global tariff plans

David J. Lynch
| WashingtonPost

Across the United States, companies that rely on foreign suppliers are preparing to raise prices in response to the massive tariffs promised by former President Donald Trump if he wins Tuesday’s election.

Manufacturers of a range of items including clothing, shoes, baby products, auto parts and hardware say they will pass on the costs of the tariffs to their U.S. customers.

The planned price increases next year would come as consumers begin to get relief from the highest inflation in four decades, and are in direct contradiction to Trump’s repeated assurances that foreigners will pay the tariffs.

“We plan to increase prices,” Columbia Sportswear CEO Timothy Boyle said in an interview. ‘We’re buying stuff today for delivery next fall. So we’re just going to deal with it and we’re just going to raise prices. … It’s going to be very, very difficult to keep products affordable for Americans.”

Trump promises to impose the toughest tariffs since the 1930s, including a 60% tax on products from China and a 10 to 20% tax on all other foreign goods. This will encourage companies to produce in the United States using American workers rather than buying from foreign suppliers, he said.

Trump has also repeatedly claimed that foreign companies – not Americans – pay such import taxes. “The countries will pay,” he emphasized this month during an interview with Bloomberg’s John Micklethwait at the Economic Club of Chicago.

In fact, U.S. importers pay all tariffs to the U.S. Customs and Border Protection Agency at the time their products enter the country.

Depending on demand for individual products and the availability of alternatives, the tariff burden may be shared between the foreign producer, the U.S. importer, and the final customer.

For example, the foreign company making the product might redesign the assembly line to reduce costs, or might agree to reduce its profit margin to maintain U.S. sales.

But the biggest costs are borne by American buyers.

“A consistent theoretical and empirical finding in economics is that domestic consumers and domestic businesses bear the burden of a tariff, not foreign countries,” according to an analysis by Yale University’s nonpartisan Budget Lab.

Executives at AutoZone, an auto parts retailer, told investors this month that they were prepared for the products they import to become more expensive. The company’s top suppliers include companies in India, China and Germany, according to a June press release.

“If we get tariffs, we will refund those tariff costs to consumers,” AutoZone CEO Philip Daniele said during a recent earnings call. “We generally raise prices up front – we know what the rates are going to be – and we generally raise prices accordingly.”

Similarly, Stanley Black & Decker CEO Donald Allan told investors earlier this year that his company would likely have to “take some surgical price action” to offset any new tariffs.

During his presidency, Trump imposed tariffs of up to 25% on $360 billion of Chinese imports. The Biden administration has kept most of these taxes and added others on Chinese electric vehicles, computer chips and solar cells.

Vice President Kamala Harris has attacked Trump’s proposed tariffs as a “national sales tax” that would hurt consumers. Trump’s tariff plans would cost a typical American household between $1,700 and $2,600 a year, depending on whether his universal tariff was set at 10% or 20%, according to an August study by economists Kimberly Clausing and Mary Lovely.

Harris campaign officials say their approach is more targeted than Trump’s plan to tax all $3 trillion in foreign products the United States imports each year.

“Just as in 2016, Wall Street and so-called experts said that Trump’s policies would result in lower growth and higher inflation, the media took these predictions at face value, and the record was never corrected when actual growth and job gains far exceeded performed better than this one. opinions. In fact, Trump’s policies then – as now – will fuel growth, reduce inflation and inspire American manufacturing, while protecting our nation’s working men and women from lopsided policies that favor other countries. These Wall Street elites would be wise to review the numbers,” said Brian Hughes, a senior adviser to the Trump campaign.

Manufacturers affected by Chinese trade practices, including heavy use of government subsidies, say tariffs are justified as a defensive measure.

Over the past two decades, Orrco, a maker of precision-machined products such as copper hose nozzles, has lost sales to Chinese competitors who produced the same products for less than the cost of materials.

Orrco has about 25 employees in Greensburg, Pa., near Pittsburgh, just half the workforce it had 20 years ago.

“I believe in free trade. But what we have with China is not free trade. It just erodes our manufacturing sector,” said Keith Orr, vice president of Orrco.

As the presidential campaign enters its final days, companies are preparing for possible changes in trade policy.

Some companies are placing unusually large import orders, aiming to stock up before new tariffs take effect. The United States imported 11% more Chinese goods in July and August of this year than in the same two months in 2023, according to the Census Bureau.

Other companies hope to avoid the heaviest tariffs by switching to suppliers outside China, Trump’s main target. By December, some Acme United’s Westcott brand products, such as rulers and paper cutters, will be made in Thailand and the Philippines, allowing them to escape tariffs aimed at China, CEO Walter Johnsen said during a recent earnings call.

The Shelton, a Connecticut-based company that operates under multiple brands, has also moved production of some first aid and medical products to India, Egypt and its U.S. factories in Florida, North Carolina and Washington state.

Johnsen said he was skeptical that Trump would actually follow through with his announced plans to raise tariffs on all U.S. imports. Taxing imported medical products, including drugs, for example, would be too disruptive to the U.S. health care system, he said.

“The hospitals would come to a standstill. So it is very unlikely in my view that 60% rates will be even remotely realistic, but it is a negotiating point,” he told investors.

Similarly, during a recent trip to China, Sebastien Breteau, CEO of QIMA, which conducts factory inspections and audits for major retailers worldwide, found few Chinese suppliers who believed Trump would implement what he has promised.

“He is a man who can change his opinion ten times a day. So people don’t believe him. People don’t believe Trump is going to raise tariffs by 60%,” said Breteau, whose clients include Costco and Walmart.

Still, Trump’s first trade war, which began in 2018, roiled U.S. companies that had become too dependent on Chinese suppliers. The subsequent trade disruptions during the pandemic, exacerbated by Russia’s invasion of Ukraine in February 2022, caused many companies to explore other options.

Columbia Sportswear has moved some of its production for the U.S. market from China to Central America in recent years, Boyle said.

Newell Brands, owner of Rubbermaid, once relied on Chinese suppliers for about 30% of the goods it sold in the United States. But it has reduced that reliance to less than 15% and expects to be below 10% by the end of next year, CEO Chris Peterson told investors this month.

By making foreign goods more expensive, the tariffs should make products produced at Rubbermaid plants in Ohio and Virginia more competitive, he said. “We have been preparing for the potential tariffs and I think we are best positioned to benefit in some categories,” he said.

Computer peripheral manufacturer Logitech has been trying to spread its supply chain across other Asian countries for years. About 40% of its global shipments come from outside China and the company aims to increase that figure to 50% in “the near future,” executives told investors this month.

“We are on a multi-year journey to make our supply chain more resilient and diversified,” said CEO Hanneke Faber. “We will continue to do that and we believe we will be prepared for whatever happens after the US elections.”

Trump’s repeated insistence that other countries will pay his tariffs is frustrating U.S. importers, who are actually getting the bills. Lalo, a retailer of baby and toddler products, was just opening its doors when the first trade war broke out. The company imports a range of premium items such as play tables, high chairs and bibs.

Some of its products were exempt from trade duties. But many of its Chinese-made goods faced tariffs, forcing the company to raise prices, said Michael Wieder, the company’s co-founder.

Lalo is growing quickly, but is not yet profitable, according to Wieder. The last thing the company with 30 employees needs is higher costs. Together with China, it imports products or materials from countries such as India and Turkey, all of which would face Trump’s universal tariff.

Although reluctant to raise prices, Lalo needs to become profitable so it can invest in new products and continue to grow, Wieder said. New tariffs will get in the way of that.

“It only hurts the consumer. Straight up. Ten times out of ten,” he says. “Exporting countries do not pay the tariffs. It’s that simple.”