As President-elect Donald Trump picks his cabinet members and gears up to take office in January, company executives are trying to determine what the future of their companies will look like. On the campaign trail, President Trump mentioned imposing a 10% to 20% tariff on all U.S. imports and a 60% tariff on all imports from China. New research highlights the significant role that consumers expect to play in bearing the cost of these tariffs. According to a study by Morning Consult, 45% of voters believe that domestic consumers, rather than companies or foreign governments, will ultimately foot the bill for tariff hikes. Whether or not the Trump administration will go through with the proposed tariffs hikes, companies are preparing for them to happen.
Tariff hikes can have a significant impact on the economy due to the importance of imported goods in U.S. commerce and production. Studies have estimated that 80% of U.S. companies are involved in international trade. Imports account for around 15% of the U.S. GDP, with manufactured goods comprising 76.9% of U.S. goods imports. According to an in-depth study by the National Association of Manufacturers, around 45% of businesses depend on imported raw materials, parts, or components in their production process. More than two-thirds of small and medium size businesses are engaged in international trade, with many relying on imported goods and materials for production or as a mechanism to distribute domestically.
Tariffs increase the cost of goods and materials imported from countries on which the U.S. imposes tariffs. With tariffs being placed on all goods and services coming into the country, the cost of production will increase for the companies that depend on them for production. One company that has been weighing its options amid uncertain future circumstances is Lowes. Brandon Sink, the company’s Executive Vice President and Chief Financial Officer, noted that “roughly 40% of our cost of goods sold are sourced outside of the U.S., and that includes both direct imports and national brands through our vendor partners. And as we look at potential impact, certainly would add product costs, but timing and details remain uncertain at this point.”
There are various ways a company can respond to the increased production costs caused by tariffs. including absorbing the cost leading to profit losses, cutting costs elsewhere in the company, changing suppliers and manufacturers to be more domestically produced, or passing the costs down to the consumers through increased product prices.
CNBC analyzed the frequency of tariff mentions in company earnings calls as they plan for the upcoming year. Tariffs have been mentioned more in 2024 Quarter 3earnings calls than all of 2023 combined, with the number doubling from 2024 Quarter 2. Businesses will have to make decisions quickly, as tariffs may hit early next year, as soon as the White House change takes effect.
While not the only option, many companies say that they plan to offset the cost of tariffs by passing it on to the consumers. A National Taxpayers Union review of recent earnings calls shows that many companies have gone on record to express how they would be affected by tariffs and what their plan of action would be in response. For example:
Star Equity Holdings, Jeffrey Eberwein, Executive Chairman of the Board, “Even if we don't buy imported lumber, other people do, primarily from Canada,… that would be the main market to watch, is there an increase in tariffs on lumber from Canada and I would, suggest that if that were to happen, it would be an industry issue, not a Star issue and [everyone would] have to raise prices to pass that through.”
United Technologies, Gregory Hayes, CEO, “I would expect pricing will also have to increase next year if these tariffs remain in place … Ultimately these tariffs, it all gets passed onto the consumer in one form or another. It’s just a tax on the consumer in another way to think about it.”
Costco, Richard Galanti, CFO, “Accelerating shipments before tariffs go into effect, recognizing there’s a limited ability to do so. Everybody’s trying to. Working with suppliers to see what can be done to reduce and/or absorb some of the costs, and in some cases reducing order commitments on certain impacted items.”
Lulu’s Fashio n Lounge Holding inc., Marl Vos, President and CIO, “Should higher import tariffs arise, we plan to manage the impact as we have done successfully before, distributing the impact across vendors, customers and our own margins.”
Autozone, Phil Daniele, CEO, “If we get tariffs, we will pass those tariff costs back to the consumer and we'll pass them through. As they turn through, we'll generally raise prices ahead of -- we know what the tariffs will be.”
La-Z-Boy Incorporated, Melinda Whittington, President and CEO, “We've managed through tariffs before. And as an industry, those costs have generally been pretty much passed through to the customer and then the end-consumer through surcharges.”
Swiss Re AG, John Dacey, Group CFO, “One of the things our teams have been thinking about is would the execution of the campaign discussions on tariffs have an inflationary-like impact on some lines of insurance in the U.S. and/or more broadly. And if that's the case, then we need to be sure that we're adjusting our prices or seeing the primary companies adjust their prices accordingly. If it's going to cost 24% more to replace the Mercedes that's not built in the U.S.”
Walmart, John David Rainey, CFO, “We never want to raise prices…our model is everyday low prices. But there probably will be cases where prices will go up for consumers.”
Braddock Public House, Matt Katase, Owner, “The first consideration that we had was … looking at price adjustment because we want to be proactive rather than reactive.”
As the possibility of tariffs looms under the incoming Trump administration, companies across the country face the challenging task of navigating increased production costs and adjusting their business strategies. Consumers should be wary of potential price increases and changes to products that they love, as companies navigate the potential tariffs.