Tariffs are creating a good deal of uncertainty for businesses and the stock market. As of this writing, the US has implemented 25% tariffs on Canada and Mexico and 20% tariffs on Chinese goods. Potential tariffs have also been announced on all food products coming into the US. Adding to the uncertainty, the 25% tariff on automobiles from Mexico and Canada has been postponed a month. As this is an evolving situation, we will continue to bring you updates.
At the ITR Economics Summit on March 20, we will dive deep into the latest on tariffs and explain how they could disrupt supply chains. Make sure your business is prepared for the future by attending this must-see event.
In the meantime, there are a few aspects to keep in mind:
- Tariffs will be inflationary. Typically, the impact starts as more microeconomic – for example, the cost of avocados will go up before the impact is seen in the overall CPI figure. Ensure that you are using price metrics specific to your inputs rather than pegging your price increases solely to the CPI or PPI figures.
- Be watchful of consumer trends. We expect overall US Retail Sales to remain on track to grow 4.6% this year. Consumers will continue to spend, but you may see shifts in what they are buying as they become more price-conscious. For example, consumers may continue to spend $200 at the grocery store each week, but what they spend that money on is prone to change. Target and Best Buy have already announced that they would be raising prices to account for the tariff impacts. Expect to see customers buy less expensive substitutions and forgo discretionary items if budgets become too tight. However, it is not a one-size-fits-all situation – customers at higher income levels will have more maneuverability during a period of increasing inflation.
This leaves you with a handful of primary positions during a period of inflation:
- Be the low-cost option to capture budget-conscious spenders.
- Be the luxury option that caters to customers with higher incomes.
- Hone your competitive advantages to avoid competing on price – if you are not going to be the low-cost option, you need to make it abundantly clear why consumers should be spending more for your product.
- If you can afford it, keep your price increases just below the competition to demonstrate that you are not as exposed to tariffs, as this will gain you an edge.
Remember, tariffs create situations for winners and losers. While there is ongoing uncertainty, there is also an opportunity to carve out a new niche for your business. Lead with courage and an entrepreneurial spirit.