Whatever one thinks of President Trump’s aggressive tariffs from a policy perspective, they are already causing headaches for the nation’s retailers. The sweeping on again, off again tariff regime first announced on “liberation day” in early April, finally took effect this month, when import duties on products made in more than 90 nations around the world were raised substantially.
The new tariff levels vary by country, ranging from a baseline of 15% to as high as 50% for Brazil and India. An analysis by the Budget Lab at Yale, a nonpartisan think tank, found that the average effective tariff rate now stands at 18.6%, a level not seen since the Great Depression. The report predicts that prices will increase 1.8% as a result of all tariffs imposed in 2025, costing U.S. households an average $2,400 this year alone. Shoes and apparel are categories that will be hit especially hard, with short-term prices rising 39% for the former and 37% for the latter.
On a macroeconomic level, the Budget Lab concluded that because of the Trump tariffs gross domestic product growth will be half a percentage point lower this year and next, while the unemployment rate increases 0.3% this year and 0.7% in 2026. On the plus side of the ledger, the import taxes will generate more than $2 trillion in revenue.
Taken together, the effects of the administration’s tariff policy put retailers and CPG suppliers in a difficult position. Until now, most companies have been reluctant to pass along rising costs to their customers, who, despite a lot of uncertainty, have remained remarkably resilient. Both of those tendencies are likely to change as the full impact of tariffs emerges over the next few months.
Many retailers, including Walmart, Costco, Target and Best Buy, have either already raised prices or indicated that they expect to do so. In response, consumers, already weary after a recent prolonged period of high inflation, are likely to draw back.
How should retailers, especially those that have built their reputation on delivering sharp value to consumers, respond? First, by working with suppliers to adjust supply chains to mitigate the impact of tariffs. Second, by absorbing as much of the increased cost of goods as a low-margin business will allow. And, finally and most importantly, by communicating with customers about the reasons behind the higher costs, while reiterating their rock-solid commitment to value.
