President-Elect Donald Trump’s Tariff Proposal: Potential Price Hikes and Inflation Concerns

As U.S. retailers and consumers start to feel some relief from inflation, President-elect Donald Trump’s proposed tariffs have sparked new worries about price volatility during his upcoming term. Trump, who won a decisive victory in the election, stated in his campaign that he would impose tariffs ranging from 10% to 20% on all imports, with even higher rates of 60% to 100% on Chinese goods.

Potential Price Increases on Common Goods

Companies, retail trade groups, and industry analysts warn that these high tariffs could lead to widespread price hikes, affecting everyday items like footwear, party supplies, and toys that Americans regularly purchase.

Matthew Shay, CEO of the National Retail Federation (NRF), emphasized, “Imposing broad tariffs on consumer goods and non-strategic imports is essentially a tax on American families.” According to him, this could drive inflation, increase prices, and lead to job losses.

Earlier this week, the NRF released a study predicting that Trump’s proposed tariffs could cause double-digit price spikes in nearly all six retail categories it tracks, including apparel, footwear, furniture, household goods, travel items, and toys. For example, clothing costs could rise by 12.5% to 20.6%.

Impact on Businesses and Pricing Strategy

Tarang Amin, CEO of E.l.f. Beauty, told CNBC that his company, which relies heavily on China for manufacturing, may have to increase prices if the tariffs go into effect. “We have the ability to adjust prices if needed,” Amin said, though he admitted it would depend on the scale of the tariffs.

Neil Saunders, managing director of GlobalData, warned that high tariffs would be a “nightmare” for retailers, who would likely pass the increased costs to consumers. “Despite Trump’s claims, tariffs are paid by companies or entities importing goods, not by the countries themselves. This means that the cost of purchasing goods from abroad, whether directly or as part of manufacturing, would rise significantly,” Saunders said.

In the long run, Saunders added that supply chains could adapt to such changes, but the short-term impact would be “highly disruptive.”

Businesses Most Affected by Tariffs

The impact of these proposed tariffs will vary depending on where a business sources its goods and whether it has enough pricing power to absorb or offset increased costs. A Bank of America report noted that Five Below, Crocs, Skechers, Amer Sports, and American Eagle Outfitters face higher risks because over 20% of their products are sourced from China.

Conversely, companies like Bath & Body Works, which sources about 85% of its products from North America, would be less vulnerable. Bank of America downgraded Five Below from neutral to underperform because the company lacks “the pricing power to mitigate high tariffs.”

Dollar stores, such as Dollar Tree, are also at risk because their fixed-price business model makes it difficult to pass higher costs onto customers. Dollar Tree sells many imported items from China at a $1.25 price point, which means it would either have to absorb the costs or change its pricing strategy.

Yeti Holdings also faces significant exposure to China and was downgraded from buy to neutral. However, due to its strong customer loyalty and high-profit margins, Yeti might be able to absorb the additional costs or raise prices.

E.l.f. Beauty has taken similar steps to reduce its reliance on China. “In 2019, when the 25% tariffs were introduced, nearly all our production was in China. Today, under 80% of our supply is sourced from China, and we expect that number to decrease further,” said CEO Amin.

Sticker Shock for Consumers

For consumers, tariffs could lead to “sticker shock” on a range of items, from shoes and car repairs to toys and beverages. Some companies, like AutoZone, have already told investors they will pass additional costs onto customers.

AutoZone CEO Philip Daniele said that if tariffs are implemented, the company would raise prices accordingly and has historically adjusted prices in anticipation of such costs.

Even items like beer, whiskey, and cookies could become more expensive. Analysts at TD Cowen have highlighted companies at risk, including Constellation Brands (producer of Corona Extra and Modelo Especial beers), Diageo (which imports tequila from Mexico and Scotch from Scotland), and Mondelez (producer of cookies and snacks in Mexico).

Footwear for both adults and children would also become more costly if Trump’s tariffs are implemented, said Matt Priest, CEO of the Footwear Distributors and Retailers of America. He explained that about 99% of footwear sold in the U.S. is made abroad, and moving production back to the U.S. would be challenging even with high tariffs.

Consumer Concerns About Price Hikes

Despite the current decline in inflation, retailers and consumers are concerned that Trump’s tariff policy could lead to price increases. “Inflation is currently on the decline,” Priest said. “Imposing additional tariffs would counter this trend and negatively impact consumers, who have made it clear they don’t want higher prices.”