The changes in US tariff policies have created significant challenges for retailers worldwide, especially those in the fashion and luxury markets who are heavily reliant on the US. The effect has been felt throughout the UK retail sector, inevitably leading to difficult decisions regarding cost increases, supply chain adjustments, and future strategic plans.
The uncertainty surrounding the policies has made the situation even more difficult. President Trump recently revised tariffs, increasing them on Chinese goods to 145% and introducing a 90 day tariff pause for all countries other than China. Whilst this temporary pause offers most companies additional breathing space to adjust their supply chains and evaluate strategies, difficult decisions still need to be made.
Increased Costs and Pricing Pressures
The immediate impact of the tariff changes is the increase in costs for retailers selling to the US. UK goods face a 10% tariff increase, whilst imported goods, particularly from China, will incur higher costs. Retailers must decide whether to absorb these costs or pass them onto consumers. For small businesses, which often operate on tight margins, this can be particularly challenging. They face a dilemma – either raise prices and risk losing customers, or absorb the costs and shrink the margin even further. For many UK retailers who are reliant on inventory from high tariff countries, US trading may become unsustainable, and we could see international shipping to the US cease altogether for some UK brands, leading to a shift in focus to new markets.
These tariffs come at a challenging time for UK retailers, already dealing with rising costs from the 2024 Autumn Budget, which has resulted in price increases and shrinking margins.
Even retailers not selling directly to the US are affected by global supply chain disruptions, with expected increases in supplier, freight, and distributor prices due to trade rerouting and price adjustments.
Supply Chain Disruptions
Many UK retailers rely on global supply chains through regions with higher tariffs, such as China, Vietnam and Bangladesh, particularly in the fashion industry. The looming cost increases will require retailers to re-evaluate their supply chains. Smaller retailers, in particular, may lack the flexibility to easily adjust their sources, making them more vulnerable to these disruptions.
Strategic Changes
Retailers with significant exposure to the US will need to rethink their strategy and adjust their short and long term plans to mitigate impacts and capitalise on the opportunities. This may include accelerating longer term plans to establish local US operations, reducing tariff impacts by paying duties on the cost price of goods, rather than on the selling price. However, setting up a US subsidiary comes with its own barriers of investment. Some retailers may decide to stop importing to the US altogether and focus on new markets and alternative supply chains. However, any adjustment requires resources and planning, which can be challenging to implement.
What Can Businesses Do?
Understanding the impact of tariffs on your supply chain is essential for formulating next steps. Modelling the impact on profit per unit and scenario planning for supply chain strategy adjustments will help businesses adapt to the changing environment and explore available options.
Want to Find Out More?
You can register for a free upcoming webinar on ‘US Tariffs – Navigating the changing global trade landscape’, on Wednesday 23 April at 16:00pm. The webinar will be presented by MSI specialist law firm member, Diaz Trade Law, with International Trade Law Expert attorney, Jennifer Diaz, covering the recent significant changes to tariff policy, the lasting impact on global trade, including supply chain strategies and investment, and provide mitigation and compliance strategies for lawyers, accountants, and their clients affected by US tariffs. You can register here.
We’re also hosting our own webinar, aiming to provide some clarity around the tariffs, more broadly for all sectors, ‘Tax Navigator: Tariffs and Risks to your Supply Chain’, on Wednesday 4 June, between 10:00 – 11:00am. You can register for free here.
