Tariffs have reshaped retail operations in recent years. The significant trade policy shifts, particularly between the U.S. and China, have created ripple effects throughout the entire retail ecosystem.
Key Impacts at a Glance
• Financial Impact on Consumers: The Federal Reserve Bank of New York found that the 2018–2019 tariffs cost the average American household approximately $831 annually. The 2025 ones could cost households an average $4,600 annually.
• Supply Chain Shifts: 35% of companies surveyed by the American Chamber of Commerce in China had moved or were considering moving manufacturing operations outside China due to tariff concerns.
• Private Label Growth: Private label sales reached 19.6% of all U.S. food and beverage dollar sales by 2022, up from 17.5% in previous years (IRI/PLMA data).
• Consumer Perception Shift: 80% of consumers now believe private label quality equals or exceeds national brands across many categories (McKinsey).
• Inventory Strategy Changes: Retailers increased inventory levels by 10–15% during periods of trade uncertainty (National Retail Federation).
• Margin Differential: Retailers with diversified sourcing and strong private label portfolios report profit margins 2–3 percentage points higher during trade volatility periods.
Understanding the Tariff Context
Since 2018, the U.S.-China trade relationship has experienced substantial changes. Tariffs on Chinese goods increased to 25% on approximately $370 billion worth of imports. Despite some negotiated agreements, many of these tariffs have remained in place, creating persistent challenges for businesses across the supply chain.
China’s Retaliatory Tariffs
In response to U.S. trade actions, China imposed retaliatory tariffs affecting approximately $22 billion worth of U.S. agricultural products, including soybeans, pork, beef, and seafood. These tariffs specifically targeted key sectors of the American economy, amplifying the trade conflict’s impact on U.S. exporters and supply chains tied to the agriculture and food industries.
Recent Developments: The 90-Day Tariff Pause
In a significant policy shift, President Trump recently announced a 90-day pause on certain tariff implementations. This temporary measure aims to provide businesses with additional time to adjust supply chains and evaluate strategic options. The pause affects primarily new tariff schedules that were set to take effect, while leaving many existing ones in place.
Significant Impacts of the Tariff Pause
• Short-term Relief: Retail sector gains temporary breathing room for strategic planning
• Supply Chain Decision Timeline: Major sourcing decisions can be evaluated with less immediate pressure
• Inventory Planning: Retailers can adjust upcoming purchase orders and shipment timing
• Price Stabilization: Potential short-term stabilization of consumer prices in affected categories
• Negotiation Window: Creates additional time for international trade discussions
How Supply Chains Are Responding
The effects on suppliers and manufacturers have been substantial. According to research from the American Chamber of Commerce in China, about 35% of surveyed companies had moved or were considering moving their manufacturing operations outside China specifically due to tariff concerns.
The financial impact has been measurable as well. The Federal Reserve Bank of New York found that the 2018–2019 tariff implementations cost the average American household approximately $831 annually through both direct price increases and reduced economic efficiency. The new policies could increase those household costs to $4,600 extra per year if implemented and would significantly alter spending habits.
What’s Happening at the Retail Level
For retailers, the challenges have been multifaceted. Research from the University of Chicago and Federal Reserve demonstrates that retailers have passed nearly all tariff-related cost increases to consumers, particularly visible in categories like appliances, furniture, and electronics, where Consumer Price Index data shows prices consistently outpacing general inflation when tariffs affect their components.
Retailers have also adapted inventory strategies. According to National Retail Federation data, companies increased inventory levels by 10–15% during periods of trade uncertainty, requiring substantial capital and storage adjustments.
Most Affected Retail Categories:
• Consumer Electronics: Components and finished goods highly impacted
• Furniture: Significant manufacturing presence in affected regions
• Apparel and Footwear: Labor-intensive categories with substantial offshore production
• Appliances: Complex supply chains with multiple international touchpoints
• Seasonal Items: Products with narrow selling windows particularly vulnerable to disruption
The Private Label Solution: A Strategic Response
Private label products have seen remarkable growth. IRI and Private Label Manufacturers Association data show private label sales reached 19.6% of all U.S. food and beverage dollar sales by 2022, up from 17.5% just a few years prior.
Consumer perception has evolved as well. McKinsey research indicates that approximately 80% of consumers now believe private label quality equals or exceeds that of national brands. This perception creates an opportunity for retailers to build loyalty and preserve margins.
Strategic Approaches in the Market
• Target: Owned brands such as Good & Gather generated over $13 billion in sales in 2022—representing about 33% of total revenue.
• Kroger: Private brands now account for approximately 21% of total sales.
• Grocery Trends: Nielsen data confirms private label growth has consistently outpaced branded products during economic downturns and inflationary periods.
Looking Ahead: Strategic Considerations
Retail executives are focusing on building resilience. A McKinsey survey found that 93% of supply chain leaders plan to enhance resilience through regionalization and dual sourcing.
There’s also heavy investment in direct-to-consumer (DTC) strategies. eMarketer research reveals that brands with robust DTC operations grew 40% faster during recent supply disruptions than those relying on traditional retail channels.
Response to the Tariff Pause
Many retailers are using the 90-day pause as an opportunity to reassess sourcing and supply strategies. However, most companies are continuing with their diversification efforts, recognizing that trade policy remains volatile. While the pause provides breathing room, it doesn’t fundamentally change the longer-term need for adaptability and risk mitigation.
The Bottom Line
Retailers that embrace sourcing diversification and private label development have demonstrated greater resilience and profit margins 2–3 percentage points higher than competitors during trade volatility.
As tariff dynamics continue to evolve, strategic investment in supply chain agility, private brands, and direct-to-consumer models will separate leading retailers from the rest of the market.
What about suppliers? During the 2018-2020 trade wars, nearly 25% of small manufacturers went out of business due to tariffs pressuring supply chains and B2B sales. The key takeaway is that companies who try to wait it out have a lower chance for long-term success than those who actively push forward with their investments in marketing, sourcing, and innovation. This is the tipping point for many companies and those who embrace aggressive, agile strategies will be the ones to survive.
