Q&A – Will Companies Absorb the Cost of Tariffs or Pass Along the Costs to You? - Driven By Braman Motorcars
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Today’s Entry: @brianmuddradio I’ve heard of some examples of companies that are planning on absorbing tariff costs rather than raising prices. Do you have any idea of how much of the impact will be passed onto consumers vs. absorbed by businesses?
Bottom Line: Today is the day that President Trump’s announced “Liberation Day” tariffs take effect. Starting just after midnight last night, imports into the U.S. are hit with a minimum 10% tariff before the products are allowed to enter the American market. But does that mean that imported products will be 10% more expensive? No, they most certainly won’t. First and foremost, what’s important to know is that most of where your dough goes isn’t overseas. According to the Bureau of Economic Analysis, only 18% of goods Americans consume are imported. In other words, 82% of what you pay for isn’t impacted by the tariffs. Perspective remains key. As for some of the major players, here’s their plan heading into today’s impact.
- Walmart: Walmart has suggested it could mitigate the impact of tariffs on consumers by working with suppliers to absorb some of the costs. Walmart has negotiated with manufacturers (some would say they’ve demanded) to absorb tariff costs to avoid passing them on to customers, reflecting a public perception of their intent to shield consumers where possible. The impact on prices for goods at Walmart is expected to be minimal if existent at all.
- Costco: Similar to Walmart, Costco has been instructing suppliers to absorb tariff costs rather than passing them on to consumers. Costco’s CEO had this to say when asked about tariffs: With our flexibility of the treasure hunt, there's not many items that we can't find something to replace or something else to bring in. I feel like our people are very well equipped to deal with anything coming our way. Similar to Walmart the impact is expected to be nil to minimal.
- Apple: While Apple has been ramping up production immediately in India, where most iPhones are now manufactured, to minimize the impact to China. Secondarily, Apple is rapidly moving forward with its plan to add 20,000 employees at its Houston, Texas based manufacturing plant as part of its long-term plan to increase US investment by $500 billion. On the retail end, it’s expected that some mobile service companies will eat some of the tariff cost as will Apple, making the impact for Apple products to be minimal to moderate depending on whether you’re buying products directly from Apple or as part of service plans.
Hopefully those antidotes are helpful for what you can expect going forward – which in most aspects of life is likely to be less than you’ve likely been led to believe based on news accounts.
Overall, here’s what you might expect to see... A Yale Budget Lab recent analysis estimated that President Trump’s tariff policy would lead to an average 2.3% increase in costs to consumers. So yes, most of the tariff costs will be eaten on the producer/retailer end of the consumer equation. There are many reasons why this is the case but among them is the potential loss of a loyal customer.
If significant cost increases were passed through to consumers by businesses, it would change consumer behavior – including many consumers who are loyal customers of certain products, stores, brands, etc. comparison shopping instead.
For almost all businesses the potential loss of customers that are already loyal to them is greater than the cost of absorbing the majority of the tariff impact – especially if they prove to be temporary – which is a widely held belief throughout much of corporate America. Some companies, some brands are obviously better positioned for this than others – especially those that almost have domestic suppliers.