Donald Trump, who will be president in January, has called himself “a Tariff Man.” Tariffs are “the best thing ever invented,” he has said. He also said that “tariff” was “the most beautiful word in the dictionary.”
But a lot of the companies that make or sell the clothes, sneakers, and other things that Americans buy, like Walmart Inc. and Nike Inc., don’t really see it that way.
Tariffs, or taxes on imports, are often talked about in terms of a threat to business and the extra cost that customers would have to pay for better prices in stores during earnings calls after the election and in regulatory reports by companies. That effect would come on top of a rise in the cost of living that has been going on for more than two years. This has made higher prices for things like food and housing a major problem in the election.
As an example, some executives on those calls have tried to seem calm by pointing to Trump’s first time in office. But some have said that they might charge even more if there is a trade war. In the end, they might not be able to or will not be able to protect buyers from the effect.
And even though Trump promised to bring jobs back to the U.S. and stop competition from China, some stores and clothing companies are already changing their production plans, even though they say they can still make things in other places.
Trump has said that he wants to put at least 10% tariffs on all imports and at least 60% taxes on goods coming from China, which has been a trade target of his for a long time. It’s not clear what those duties will look like or if they will be put on businesses all at once or gradually. It’s also not clear how much stores might raise prices or change how they make things in response.
But two days after the election, Steve Madden Ltd. SHOO 1.35%, a shoe company that bought 79% of its goods from China last year, said it would start making things in other countries.
“Look, we’ve been planning for a possible situation where we would have to move goods out of China more quickly,” said Edward Rosenfeld, the CEO of the company, during its earnings call. “Over the course of several years, we’ve worked hard to build up our factory base and our ability to source goods from other countries, such as Cambodia, Vietnam, Mexico, Brazil, and so on.” So, we started carrying out that plan yesterday morning.
He also said, “Ways to tax Chinese imports could affect just under half of our current business.” John Rainey, Walmart’s WMT 2.32% chief financial officer, told CNBC this week that the company might have to charge customers more if Trump’s tariffs go into effect. This is true even though people of all income levels go to Walmart to find deals.
He said, “We never want to raise prices.” “Every day we have low prices.” There will probably be times, though, when prices go up for buyers.
Some people in Trump’s camp say that tariffs, which are fees that companies that bring in goods from other countries pay to the government, are a way to get people to buy U.S.-made goods, protect U.S. jobs, and bring back manufacturing jobs that were sent overseas by executives looking for cheaper labor and bigger profits. Trump put taxes on goods made in China during his first term, and President Joe Biden has kept them in place or raised them.
But analysts are afraid that these tariffs will start a trade war, which will make things even worse for consumers because companies will have to raise prices to make sure they keep their profit margins. Higher prices could also make the Federal Reserve less likely to cut interest rates. This comes after a time of keeping rates high to try to cool down borrowing, hiring, spending, and inflation in general.
Brett House, an economics professor at Columbia Business School, also said that stores usually have net profit margins of less than 10 percent.
When asked about it, he said, “That makes me think that retailers don’t have much room to absorb the tariffs themselves and avoid passing those price increases on to consumers.”
He also said that since people are still spending money, stores might not have much of a problem raising prices in response to a trade war across borders.
“Since people are still spending a lot, it’s not clear that stores have the room or the motivation to take those price hikes instead of passing them on to customers,” he said.
Deloitte did a study last year that showed that even though corporate America’s profit margins soared in the second and first half of 2021 and 2022, the world’s biggest retailers’ net margins stayed just above 4% on average. A big U.S. business group called the National Retail Federation said this month that tariffs on clothes, toys, furniture, appliances, shoes, and travel items would “reduce American consumers’ spending power” by $46 billion to $78 billion each year as long as the tariffs were in place.
The group said, “The higher costs caused by the proposed tariffs would be too big for U.S. retailers to handle, and many customers would not be willing or able to pay the higher prices.”
On its earnings call this week, home goods store Williams-Sonoma Inc. WSM -0.30% said that it had cut the amount of goods it buys from China from 50% to 25% over the past few years. The report also said that the U.S. was already a big manufacturing hub, making a lot of the company’s furniture, lighting, and the popular peppermint bark candy.
Still, the company said it had a “category by category plan” to make even fewer things in China if needed. Executives also told investors that the company had come through Trump’s first term of tariffs.
It’s likely that we’ll move some things to other countries, said Chief Financial Officer Jeff Howie during the call. “We might front-load some goods at some point in 2025.” Some of it will be paid for by the sellers, and some of it may also be paid for by the customers.
He also said, “Right now there is a lot of uncertainty.” We’re getting through it. We have the size and plan to change course if things change.
On the company’s earnings call, Ernie Herrman, CEO of TJX Cos. TJX 1.42%, which runs the discount stores TJ Maxx and Marshalls, told analysts that the company had also dealt with Trump’s tariffs and that direct imports were only a small part of its business.
He said that due to the fact that the store sells used goods from other brands, retailers, and makers, tariffs might have some indirect effects on the business. It might have more of that goods to choose from, though, if tariffs are put in place and makers bring them in early.
If a brand were hit with taxes and had to raise their prices, those higher prices would be passed on to other stores. Could that one SKU’s price go up a little for us? “It could,” he said. “But the difference in value between us and our competitors will never be a problem.”
Reports say that China’s exports rose 12.7% year over year in October. Some analysts said that part of the reason for the rise was that companies were trying to stock up on supplies in case Trump won.
In other places, companies have also said that tariffs would be a pain, at least in the bland language of their yearly reports. In its most recent yearly report, Nike NKE 3.06% said that about 18% of its shoes were made in China, 50% in Vietnam, and 25% in Indonesia. The business said that higher tariffs and other trade restrictions might hurt sales and change how it gets supplies.
In its most recent annual report, Nike said, “It may take time and cost money for us to change how we do business in order to adapt to or comply with any such changes.”
In its annual report, Amazon.com Inc. AMZN -0.64% said that sellers in China “provide a large portion of our components and finished goods” and “contribute significantly to our third-party seller services and advertising revenues.”
It also said that trade and regulatory restrictions, along with other things that affect China, “could hurt our operating results.”
Target TGT 2.81% recently said that its own customers were still being cautious about spending. The company said that a “large portion” of its goods came from outside the U.S., with China being its main source. A lot of the goods that Dollar Tree Inc. (DLTR 0.97%) and Dollar General Corp. (DG 1.37%) buy come from China. In its most recent annual report, department store chain Macy’s Inc. M 8.16% said that companies in China make a “significant amount” of its own-brand goods. It was reported in RH RH 6.75%’s annual report that the “aspirational luxury” furniture chain got about 22% of its goods from China, based on the dollar amount it bought.
Skechers USA Inc. SKX 1.11%, a company that makes sneakers, said that most of its goods are made in China and Vietnam. And Deckers Outdoor Corp. DECK 5.63%, which makes Ugg boots and Hoka sneakers, said that it gets a lot of its goods from those two countries. The company said that most of the wool used to make Ugg boots comes from two tanneries in China. These tanneries get most of their sheepskin from Australia. A lot of the fabric that Lululemon Athletica Inc. (LULU 0.63%) and Under Armour Inc. (UA 3.44%) use comes from China.
The effect on trade is another problem for some brands, like Nike and Under Armour, which are already dealing with changes in leadership and trying to get back on track as the trend toward looser-fitting clothing in athleisure grows. In a recent research note, TD Cowen analysts said that Nike was still a “tired” company that was feeling “Jordan retro fatigue.”
They said that tariffs and China’s response were becoming more likely.
On the company’s earnings call this month, Ted Decker, CEO of home improvement store Home Depot Inc. HD 2.33%, said that the chain got more than half of its items from within the United States. But he said he thought taxes would have a big effect on many things.
“I would say that whatever happens with tariffs will have an effect on the whole industry,” he said. “It won’t favor one retailer or distributor over another who is importing goods.”
