EP 227: The What-Ifs of Potential Tariffs

Special Guest: Jonathan Gold, Vice President of Supply Chain and Customs Policy, National Retail Federation

In a year of unprecedented economic uncertainty, the possible implementation of widespread tariffs has far-reaching implications for retail markets and consumer behavior. Beyond the immediate impact on pricing, these trade policies could fundamentally alter supply chain strategies, product availability, and market competition. Join Shelley and Jonathan Gold from NRF as they discuss all-things tariffs and how challenging it is for retailers to plan for sudden, unexpected policy changes. While some retailers advocate bringing manufacturing back to the U.S, the infrastructure, skilled labor, and economic conditions required for domestic production cannot be established quickly enough to counteract imminent, imposed tariffs. From a macro perspective, the current trade environment demands a strategic reassessment of supply chain diversity and risk management to thrive in an increasingly volatile global market.

For more strategic insights and compelling content, visit TheRobinReport.com, where you can read, watch, and listen to content from Robin Lewis and other retail industry experts, and be sure to follow us on LinkedIn and Twitter.

Transcript

Transcript by Descript:

I think what retailers are trying to do right now is really get a full understanding of the scope of their supply chain and understand where are the risks and where are the opportunities. And it's not just for those who are kind of the direct importers who have more control over their supply chains, but again, for the small and medium sized guys to look.

You know, at their, their vendors look at their indirect supply chain and fully understand, you know, what is their exposure to, to tariffs as well as other, other potential issues.  Retail Unwrapped is a weekly podcast hosted by Shelley Cohan from The Robin Report. Each episode dives into the latest trends and developments in the retail industry.

Join them as they discuss interesting topics and interview industry leaders. Keeping you in the loop with everything retail.  Hi, everybody, and thanks for joining our weekly podcast. I'm Shelley Cohan, and very excited to have back on Retail Unwrapped, Jonathan Gold, who's the Vice President of Supply Chain and Customs Policy at the National Retail Federation.

And as most of our listeners are aware, the NRF is the voice of retail and really an advocate. for retail on trade, government policies, regulations. And you're located right in DC, which is a prime spot to help all of us with those things. So John, I am thrilled to have you back.  Welcome. Hi Shelly. Hi Shelly.

Good to, good to talk to you. Happy to be back again.  Well, we have a hot topic today. We're going to be talking about tariffs and the impacts on both retailers and consumers. And we have to bring up the demise or I guess, short delay demise. It's back again of de minimis and what that means to consumers and importers to the U.

S. So we're gonna jump right in. And, um, when I think about terrorists and I think about, you know, retailers and consumers, it's really hard to separate the two big components. One is You know, tariffs obviously raise the cost of goods, which eventually means higher prices, uh, for retailers or less profit, uh, higher prices for consumers or less profit for retailers or kind of a mix of both, right?

So retailers either making less money or charging the customer more. And second, you know, tariffs might actually have an impact on the range of products that can be produced because importation makes. them unprofitable. So talk to us, John, about these domino effects and what's happening and what retailers should be thinking about. 

Thanks, Shelley. Tariffs are certainly front and center for a lot of people and have been discussed for  months now. I mean, throughout the campaign, post election. We've had a number of announcements post inauguration as well. So, you know, I think first and foremost, we need to kind of level set here in the fact that, you know, tariffs are a tax that are paid by the U.

S. importer. They're not paid by the foreign country. They're not paid by the foreign supplier. So I think, you know, when we talk about tariffs, we're talking about the fact that it's the U. S. importer, either the retailer or their supplier. their, their US supplier who's paying that tax and then passing it along  through the chain, ultimately to the end consumer.

So, you know, unfortunately consumers probably will see higher prices as a result of tariffs. I think right now retailers are trying to  figure their way through the multitude of tariff announcements, trying to figure out how, when, and where the tariffs will impact them. What their ability is to mitigate the impact of the tariffs to lessen the impact on consumers.

But as you noted, they will hit the bottom line at some point throughout the cycle here. So again, trying to figure out what is their best avenue to minimize the impact, not just to the company, but to the ultimate consumer as well. And, you know, as you noted, we've seen a multitude of announcements on tariffs since day one.

Um, there was a lot of concern going into inauguration that we were going to see the universal baseline tariffs that President Trump talked about. That was the additional 10 to 20 percent tariffs on everything and everyone. There was talk of an additional 60 to 100 percent tariffs on China. As well, you know, we did a study that came out, uh, the day before the election, actually, um, that looked at six key retail categories.

I think we talked about this the last time we talked and showed that just within those six categories alone, you know, consumers would lose between 46 and 70 billion worth of spending power, uh, because prices were going to have to increase. And again, Many companies can't absorb that, that cost or have to pass it along to their consumers, especially small and middle sized, uh, retailers, um, who don't have the flexibility to move their supply chains.

So right now, you know, again, we've got several announcements being made. We've only got one set of tariffs that really have taken effect. That's the 10 percent tariffs on China over the immigration and fentanyl related issues. Right. But we've got, you know, Canadian and Mexican tariffs that are on. Pause right now.

Um, hopefully they can come to an agreement. By March 4, if not, the tariffs either take effect or get delayed once again. We've got the steel and aluminum tariffs that were announced last week that go into effect in, uh, in March. Um, some are further delayed because you've got to figure out what component, you know, what, what percentage of steel and aluminum are in the product and try to put a tariff on that. 

We've got the reciprocal tariff announcement that came out last week that's more of a plan to put. Reciprocal tariffs in place,  uh, we've got the president talking about auto tariffs and solar tariffs and pharmaceutical tariffs and tariffs on the EU. So, again, lots of uncertainty that retailers are trying to figure out, again, what the ultimate impact is going to be.

In what the impact on the consumer is going to be as well, and you're starting to see consumer sentiment,  you know, shifting, shifting downwards Yeah, well, you know the last, you know, I guess University of Michigan study that came out showed, you know, consumers are getting concerned because you know They're not seeing price decreases  Like the president had promised and what the president had run on  so, you know Consumers are starting to get fearful of the impact of tariffs and the potential increases.

They're gonna say  Yeah, I mean, it's interesting. And when I think about it, I think of, I'll just take the automobile one that potentially might be starting at 25 percent, could go higher. Um, but if I think about the American family and I think about, you know, a car is typically a, what's called discretionary, right?

discretionary money. Um, but you know, you need a car to work and you need a car to, you know, get out there. So, um, you know, how are families going to afford this? What's going to happen is it goes back to your point about, you know, that big spending pool gets, you know, shrunken down and, you know, people are going to have less discretionary spending to spend on other things.

You know, you need a car. Do you really need a vacation? You know, one would argue, yes, you need a vacation for your mental well being. But, you know, you have to earn a living, right? So, I don't know. It's really interesting, uh, about that, um, whole scenario with, you know,  how much consumers are going to actually end up paying and how that's going to impact their daily life. 

No, absolutely. Obviously, it's going to depend upon the retailer and the product and the category as to how that all has the, the impact. Um, you know, let's just take the Mexico tariffs as, as an example. You know, one of the biggest categories that can be impacted are imports of fresh fruits and, and produce, you know, avocados, number one item imported from from Mexico.

Um, you know, other products as well 'cause it's, you know, very seasonal with, with vegetables that aren't grown in the US you know, throughout the year. So that certainly has an impact and, you know, not only you're gonna see, you know, price increases, but if consumers cut back on their spending, you'll see less variety and less, less options for consumers as well.

So, you know, as much as folks would love to move supply chains back to the U. S., you just can't move everything back here. It's just, it's, it's just not feasible to do that. Um, you know, we can't make everything here  just to.  It's just not possible, you know, 95 percent of the world's consumers live outside the United States So the other part of the discussion here, it's not just on the impact on the the tariffs on the import side But it's the retaliation that our manufacturers and ag exporters face and retailers as well because sometimes, you know retail gets caught up in those Uh, retaliatory tariffs, especially luxury goods when you talk about, you know, potential tariffs on the EU.

So there's a wide spectrum of of impacts that are going to happen with, uh, tariffs despite what you hear from, you know, key administration officials who say, you know, the prices didn't increase. We didn't have inflation last go round. That's not accurate. We actually did. We saw price increases. Yeah, we were we were in a better position back in 2018 because of the success of the Tax Cuts and Jobs Act Which reduced the, the, the tax rate for retail from 35 to 21%.

So retail has had more flexibility to adjust to some of these tariffs. We don't have that ability now. And we're in a very, very different economy than we were, you know, back during the first Trump administration. Right. And John, I want to go back to something you said earlier, because the other side of the argument is many people believe that with these tariff on all these products, um, that we're actually going, we are going to bring manufacturing back to the U S.

And that is going to be great for America. Um, but I kind of heard you say that may not be the case. What's your kind of position on, do you really believe that some, a lot, maybe not so much, how much manufacturing can actually come back to the United States?  Look, I think when we talk about terrorists from the UNRF perspective, we think terrorists  are an important tool in the toolbox when we talk about trade discrepancy.

But they need to be targeted. They need to be strategic on what we're going after. Going after consumer goods, everyday household items, doesn't make sense to us. Let's be more strategic and focus on the right categories that should come back to the United States. Defense, industrial, those, you know, high end manufacturing,  um, those kinds of of areas.

Not everyday consumer goods that just haven't been made here in decades. It's like toys. We don't make toys here in the United States anymore. We don't, we're not a set up to be able to do that. And as far as, you know, why we can't make everything here. I mean, let's just take a look at what happened with baby formula during the pandemic and kind of post pandemic where.

97 percent of all baby formula that's sold here in the United States is made here in the United States. We had one factory that went down because of health related issues that was offline for six months or so. We had a crisis. We could not produce enough baby formula to satisfy the market needs. How do we rectify that?

What was the solution that we put in place? We lowered tariffs on European baby formula and allowed the imported baby formula from Europe to help make up that need for the market. Um, once the crisis was over, the tariffs went back up, but that's how we solve that crisis and shows how we can't just make everything here.

Unfortunately, we need to rely on the global supply chain. for, you know, the availability of stuff that's just not made here. Um, so again, let's focus on the strategic areas that we should really focus on to be made here. But again, it's not just putting tariffs on to bring manufacturing back. We've got to focus on the labor.

Where are we gonna get the skilled labor?  How quickly are we getting manufacturing facilities up and running? You know, by the way, if we're gonna be building new factories, Guess what goes into those factories? Steel and aluminum that now have a 25 percent tariff on them. So you're making the cost of manufacturing, of building the factories more expensive than, than what it originally was.

So we've really got to take a look at, you know, wholesale, what are we trying to achieve? What is the point of the tariffs? When you talk to the administration officials, they talk about, you know, four different reasons for why they want tariffs.  It's a negotiating tactic to get countries to come to the table and talk about and resolve trade discrepancies. 

Okay, but we can do that without putting tariffs in place. I mean, that's why you have, you know, free trade negotiations and you have negotiate with countries to address some of those issues. We'd welcome that opportunity to open up export markets and provide other opportunities for retail, but on the import side as well. 

They use tariffs as a way to get. Uh, companies to shift out of China and, you know, divest away from China. We've seen that. You saw that back in 2018 with the Section 301 tariffs. You saw a number of folks try to move out of China. A lot of that went to Southeast Asia and elsewhere, but didn't really come back here to the United States for a variety of reasons.

But we all know it's, it's not easy to shift your supply chain. It takes months, if not years, to kind of really establish that. It's, you know, number three, it's a tool to bring manufacturing back to the U S again. It's one tool. We've got to focus on the other policies that help bring that manufacturing back here.

Focus on jobs, focus on getting those, the red tape out of the way to build factories and all those other pieces. Um, and then number four is the other piece that people talk about is that it's a revenue raiser. So it helps pay for things like tax reform and everything else that the president wants to achieve.

Look, we want the president to succeed. We want him to get the tax bill done, but not on the backs of consumers and consumer goods paying for it. So, you know, There's a lot of discussion of how to, you know, again, the president likes to go back to, you know, 1913 when tariffs were the main source of revenue for the government.

We're not in that kind of environment anymore. We can't tariff ourselves enough to replace the income tax or make up for that income.  Right. I think the other thing, just in the retail industry, is there's this air of uncertainty. that has really kind of plagued us for many years. And I know a lot of retailers and brands are being very cautious.

But these everyday tariff announcements and dramatic changes in policy and government, I think it really makes it difficult for retailers to plan with any high degree of effectiveness. And I know we're in unprecedented times, but I feel like I keep saying that and I've said it every year since 2020.

But you know, how, how can we navigate through this, you know, retail environment that we're in right now? And maybe based on your expertise and on the supply chain side, you know, what, what should we be doing? Thinking about what kind of strategy should we be implementing?  Yeah, absolutely. The, the uncertainty is probably the highest levels that, that I've, I've ever seen.

And  again, the daily announcements and just not knowing what's going to happen and when makes it very difficult for retailers and others as they're, they're planning their supply chains. Cause you're typically planning six, nine, 12 months in advance. And when things just all of a sudden happen that you hadn't planned for, makes it very difficult.

I mean, look, the supply chain is faced.  Unbelievable challenges over the past  five to eight years from, you know, disruptions we saw during, during the first Trump administration through COVID through  port strikes and shutting down in the Red Sea and, you know, everything else. And so all this goes into the decisions that retailers are making, trying to, to reset their supply chains, obviously.

Looking at how do we diversify away from China is a big part of that, but trying to find new locations where you have the capacity to make up for, you know, what you were making in China again, looking at the skilled workforce. Do they have that in country? Do they have the logistics and transportation and infrastructure that you need for those higher volumes already coming through?

You know, how are the roads and bridges and ports? Do they have regular sailings with some of the larger vessels that are coming through? So all of that yeah. You know, goes into the decision making. You've got to look at to figure out how best can I plan my supply chain? Um, knowing  all the different challenges you're facing, whether it's geopolitical, you know, tariff issues or something else.

So I think what retailers are trying to do right now is really get a full understanding. Of the scope of their supply chain and understand where are the risks and where are the opportunities? And it's not just for those who are kind of the direct importers who have more control over their supply chains But again for the small and medium sized guys to look, you know at their, their vendors, look at their indirect supply chain and fully understand, you know, what is their exposure to, to tariffs as well as other, other potential issues and find ways to minimize the potential impacts.

Are there other opportunities you can take, other countries you can be looking at?  Um, so I think, again, getting that full view of your supply chain from from start to finish is really where a lot of folks are focusing in right now and trying to see where is the greatest risk and then where is the opportunity to minimize that risk as best as possible. 

Yeah, it's such a complex issue and you're right. It takes years and years. to really plan out a sophisticated supply chain with the right infrastructure. So, um,  the other thing before you leave I have to ask you about, because you and I talked about this when you were on Retail Unwrapped a few months ago, uh, and that's de minimis.

And, uh, so that's the law that companies like Taimu and Xi'an have used to kind of circumvent having to pay, uh, taxes on consumer goods. So that was, a law was put in place or they took that away from these retailers, but then there were like a million packages that landed at JFK that there was, there was no process in place to, uh, mandate the tariffs on all these packages.

So then it was, uh, taken back and now it's in pause for a minute. I mean, where are we with, uh, de minimis, what's your take on it? Sure. So, I mean, De Minimis has been in existence for, for, for decades and, you know, obviously started with their personal traveler and not having to declare, you know, small amounts when they're, they were traveling.

The law got amended, uh, back in 2016 to up the, the limit for, uh, digital shipments to 800. And obviously there's been a lot of concern.  Over the past  five, six years throughout the pandemic as e commerce shipments have kind of exploded, um, you know, under, uh, the de minimis, uh, entry, I mean, here are the, the, the millions and millions of, of packages that are coming in from customs and, um, you know, some of the challenges they have with, with looking at those, um,  as you noted, when the China tariffs were put in place a couple of weeks ago, the 10 percent China tariffs, part of what was required under that, that order was a, um, Um,  removal of the use of de minimis, um, for anything subject to the 10%.

Um, they also, uh, suspended duty drawback for folks as well. So as you noted with that suspension of de minimis, that required a formal entry. So made it more difficult to bring products in under de minimis. You saw the U S postal service stop. Essentially stop mail and parcel delivery for a span of about 12 hours before it got turned back on  Just the deliveries from China and then  within I think a day or two  They came out and amended the order saying that because they were having there was no system in place to collect the duties.

Um, they, they suspended the delay of de minimis until the department of commerce can certify a new process to collect the duties. Um,  I don't know why it's commerce has to certify that since it's customs and border protection collects the duty. So it should be treasury. So I think treasury customs and commerce are all and postal are all working.

on that process. Um, but as of right now, de minimis is still operating as normal as it was before until they can figure out that effort to collect the duties. Um, but I mean, de minimis is still an issue that this administration and Congress are paying very close attention to and trying to work. ways to address some of the ongoing challenges that are there.

As a reminder, we still have two notice of proposed rulemakings that were put out right before President Trump took office. From the prior administration, that would require more data on de minimis entries for customs to be able to do their, their screening. Um, but as well as eliminating the use of de minimis for products that are subject to trade remedies, like the section 301 tariffs.

So those, Notice of proposed rulemakings are working their way through the process now. I think there's a mid March deadline for stakeholders to submit comments to Customs, and then it'll take them probably a couple months to kind of go through all the comments and come out with the final rule, and then From then on, they'll do a final rule, unclear when that would be implemented.

Um, but, you know, there's still a lot of attention on de minimis. Uh, Congress is looking at different legislations. So, um,  at some point, there will be changes to de minimis. Just unclear what it will be at this point. But I think we can all guarantee some changes will be made to the system.  Yeah, and it just goes back to the point earlier about this kind of back and forth and back and forth and these quick policy changes without really process in place to handle the new changes is difficult.

It's a difficult, difficult environment to operate in for sure for many retailers. So any closing thoughts that you have on this? very complex issue?  No, I think look for, for, you know, folks who are listening in, especially retailers, it's, you know, again, know your supply chain, understand where the risks are, what the impacts are, um, and, and be able to kind of work through that.

And, you know, at NRF, we're, we're here to represent the industry. We're having those conversations, trying to educate folks on the impact of the tariffs. Again, when used in a strategic manner. They make sense, but to have, you know, broad based on everything and everyone is going to have a significant impact on consumers, on businesses who aren't able to reinvest in the bottom line or their people, which we think is incredibly important, especially for the retail sector.

Um, so it's, you know, we want to work with the administration as best we can, but we need the examples of, you know, what the terrorists mean and how they're going to impact folks.  Well, thank you, John. It's always a pleasure to have you on, and I want to thank you on behalf of all the retailers for all the work that you do at the NRF to support our retail industry. 

Thank you, Shelly. Appreciate it.  And for our listeners, next week we have a fantastic guest coming on, Lindsey. Sheftick, she is the marketing guru genius, and she, it'll be a lively conversation, uh, always fun to hear her take on what's going on with marketing. So please make sure to join in and thank you. 

Thank you for listening to Retail Unwrapped. We'll be back in one week with another podcast. Please subscribe on Apple Podcasts, Spotify, or any podcast service. If you have questions, ideas for a podcast, or anything else, please contact us via the Robi