In the past year, President Trump’s increasingly combative approach to global trade has sent American companies scrambling. What started with tariffs on solar panels and steel has metastasized into a multifront campaign designed to penalize the United States’ largest trading partners. Though Trump repeatedly, and inaccurately, claims that China and Mexico will bear the full weight of the tariffs announced last month, trade and business experts say the reality is that U.S. companies pay the levy first, then pass on at least some of those costs to their customers.
A recent study calculated that the 25 percent tariffs imposed on China would cost the average American household more than $800 a year, according to a blog post from the New York Federal Reserve. Tariffs on goods from Mexico, which were set to kick in Monday before Trump announced they would be indefinitely postponed late Friday, would have added to that toll. Here are real-world examples of how the trade war might play out at the cash register.
Chipotle Mexican Grill
Chipotle estimates that the tariffs on imports from Mexico would have increased the company’s costs by $15 million. Before the tariffs were averted, Chief Financial Officer Jack Hartung said the chain was prepared to raise burrito prices by 5 cents.
The company, which is based in Newport Beach, Calif., was bracing for higher food costs this quarter as avocado prices have more than doubled in the past two months, according to reporting from Bloomberg News. About 80 percent of the avocados consumed in the United States come from Mexico, according to data from the Hass Avocado board. Chipotle uses more than 450,000 avocados in its restaurants each day.
“We know that we could easily solve the volatility in our supply chain by purchasing premashed or processed avocados, which would be cheaper, readily available and provide stability, but we are committed to our brand purpose and upholding our food with integrity principles,” Hartung said in a statement.
The auto industry is one of the most vulnerable to tariffs on imports from Mexico because its supply chain depends on parts crossing the border multiple times. And of the major American automakers, no company is more exposed than GM, which imports 29 percent of its components from Mexico and manufactures several popular vehicles, including the Chevrolet Silverado, Equinox and Blazer, entirely in Mexico.
Last July, GM estimated that tariffs on steel and aluminum would cost it $1 billion a year. This week, chief executive Mary Barra told Reuters that it was still “really hard to tell” how U.S. tariffs on imports from Mexico would affect the Detroit automaker’s bottom line. But a recent Deutsche Bank analysis projected that they would have translated to a $6.3 billion hit for GM if the full 25 percent tariff had been implemented.
Passing the cost along to consumers would have led to price increases of roughly $2,400 per vehicle, Deutsche Bank said.
The new tariffs would place a disproportionate strain on the apparel and footwear industry, which already is among the most heavily taxed despite accounting for a fraction of U.S. imports, said Peter Bragdon, executive vice president of Columbia Sportswear.
Columbia pays tariffs as high as 37.5 percent on some products, like the popular Wayfinder hiking shoe it manufactures in China, Bragdon said. If the latest penalties on imports from China go into effect, the tariff would jump to 52.5 percent.
“You can’t sell a shoe with a tax like that without having it affect the cost for people down the line,” he said. “Otherwise we’ll go out of business.”
The Portland, Ore.-based business depends on its ability to navigate tariffs, Bragdon said. Columbia manufactures shoes, jackets, gloves and other outerwear in more than 20 countries and sells them in 90. Columbia is adept at adjusting its supply chain or moving manufacturing when necessary, but the current climate is so unpredictable that it has become difficult to know what steps to take, he said.
“The last thing we want to do is charge people more because of some policy that may be temporary,” Bragdon said. “Most trade policy gets developed over a long time and you can plan around it. . . . In this case it’s changing day-to-day. It’s impossible to plan or know what to do.”
The warehouse chain for those who like to buy in bulk expects to raise prices on a range of merchandise, including bicycles, electronics and luggage, CFO Richard Galanti said in an earnings call last week. Though price increases on patio furniture have already taken effect, he said, sales have been brisk.
The retailer based just east of Seattle is trying to mitigate the impact of the tariffs by bringing in some imports early, sourcing outside of China and reducing some order commitments, Galanti said. But there is only so much adjusting Costco can do if trade tensions do not ease.
“At the end of the day, prices will go up on things,” Galanti said. “We’re hopeful the ebbs and flows of the relations between our countries improves in that regard."
The potential cascade of tariffs threatens the central promise of stores such as Dollar General and Dollar Tree, where shoppers expect to fill their carts with cheaply made goods that often cost as little as $1.
“We will do everything we can to minimize the impact of tariffs on our customers, but even with these efforts, we believe our shoppers will be facing higher prices as 2019 progresses,” Dollar General CFO John Garratt said during a recent earnings call.
Even minor price increases could be harmful for Tennessee-based Dollar General’s customers, most of whom have annual household incomes of less than $49,000 a year. One-third of its customers have household incomes of less than $25,000 a year.
Dollar Tree, which has headquarters in Chesapeake, Va., relies on China for roughly 40 percent of its wide-ranging merchandise, and much of what does not come from China comes from Mexico, making the company “the poster child for tariff impact”, the Credit Suisse analyst Judah Frommer wrote in a recent note to clients.
In March, Dollar Tree chief executive Gary Philbin said the 25 percent tariff on Chinese products might end up costing the company $140 million. The company has yet to reveal longer-term projections, but in a recent earnings call, Philbin said the most recent round of penalties on imports from China would be “impactful to our business, and especially to consumers.”