The US' tariff hike on Chinese goods will stick US companies with a tough choice between raising prices or endangering margins:
from 10% to 25% on $200 billion of Chinese goods by taking $60 billion worth of US goods that previously had tariffs of 5-10% and placing those items into four new tariff groups: 25%, 20%, 10%, and 5%, The New York TimesNeither the US nor the Chinese tariffs will take effect in full immediately.
Increased prices on goods from the US will limit Chinese consumers' purchasing power regarding those items. The trade war has already been taking itsin China, which saw its slowest industrial output growth in nearly three years and its weakest retail sales growth since 2003 in November. Now, if prices on US goods shoot up, consumers are likely to buy less of those goods, further discouraging retail growth in the country. And for US retailers or brands that sell in China — on Alibaba's Tmall or Taobao platforms, for example — less enthusiasm for US goods will drive down sales, damaging international revenue growth.Meanwhile, the US' tariff hike on Chinese goods will stick US companies with a tough choice between raising prices or endangering margins.
Retailers can choose to protect their margins by raising costs for consumers.With the new 25% tariffs slated to affect $40 billion of goods that are imported from China and purchased directly by consumers, sellers are going to face heightened costs for popular items like clothing, luggage, handbags, and furniture, The Wall Street Journal. To protect their profits, retailers can choose to raise prices for consumers: For example, a price increase of 2.7% at Kohl's or 2.
Alternatively, businesses can absorb the costs themselves to avoid discouraging customers. If the absolute priority for a retailer is to minimize the impact of tariffs on its relationship with customers, it could choose to absorb that impact itself.
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