How Retail Can Navigate the New Tariff Landscape

Navigating new tariffs with lessons from Trump's first term

During the 2024 campaign, President Donald Trump proposed imposing a 10 percent tariff on all imported goods, with products from China facing levies as high as 60 percent and a 25 percent duty on all imports from Mexico and Canada. As of March 2025, however, the tariff landscape has been recalibrated. The latest measures now set a base tariff rate of 8 percent on most imports, while select Chinese products—particularly advanced technology components—face a 65 percent duty. Meanwhile, imports from Mexico and Canada average a 22 percent tariff, with notable exceptions for auto parts and certain agricultural goods. Although no one can predict a second Trump administration's precise course, these revised rates could reverberate across the retail industry in far-reaching ways.

Trump's first term offers valuable lessons on how retailers might adapt if another round of tariffs is imposed. In 2018 and 2019, multiple waves of tariffs disrupted various categories of imported merchandise. Food products—mainly produce—were mostly spared at the time. However, even these categories may face increased costs and supply chain challenges with the new tariff framework in place. Retailers could struggle to maintain the out-of-season supply and volume their customers have come to expect, demanding new strategies to keep shoppers engaged and satisfied.

Despite the uncertainty, retailers of all sizes can prepare by minimizing potential chaos, safeguarding the customer experience, and protecting their bottom lines. A good first step is to begin planning for possible tariff scenarios by tracking finished goods and their underlying components. By staying alert to the cost makeup of their assortments—and factoring in the updated tariffs—retailers can move more decisively when conditions shift, ensuring a more resilient operation in an increasingly complex trade environment.

Targeted strategies to avoid crossing key pricing sensitivities

Even small cost increases—resulting from higher input prices due to tariffs—can outsize consumer perception when they push prices over psychological boundaries. For instance, one specialty retailer raised prices across tens of thousands of items in response to tariffs on Chinese goods before the COVID-19 pandemic. The overall increase was modest, below five percent of existing prices, but it breached certain price thresholds and drew hostile reactions from customers. The retailer soon reversed many of its price hikes to counter the backlash. While units sold bounced back, overall sales did not recover as hoped. Not long after, the retailer pursued a more precise, elasticity-driven approach focusing on a smaller group of around 4,000 items. Although these price moves were larger—averaging a 15 percent increase—they were highly targeted. The plan also called for lowering prices on about 200 products that needed an investment in price. This carefully calibrated strategy delivered a nine percent lift in margin and a five percent sales boost without alienating core customers.
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Managing price increases in the face of tariff changes

Raising prices only on items directly affected by tariffs may seem logical, but it is not always the best approach. Instead, an elasticity-based view across the entire assortment helps determine which items can withstand a price hike without driving customers toward substitutes. Retailers must also consider whether unevenly applied price increases might motivate shoppers to switch brands or product categories. Maintaining a coherent "architecture" within each category is crucial. Prices should remain aligned with consumers' expectations of quality, ensuring any trade-up or trade-down decisions unfold as intended. These initial elasticity calculations will require significant updating if a sustained trade war alters local or regional economies. Retailers may also need to reevaluate standard guidelines for price increases and, in some instances, be willing to protect penny profit rather than margin rate—or even invest in profit on certain items.

Looking to competitors for cues

Understanding competitors' moves is equally important. Retailers should closely watch how rivals choose to adjust prices on comparable products. Is a competitor leading by promptly raising prices on certain items, or are they taking a wait-and-see approach? Are they concentrating price increases in select categories or distributing them more broadly? Deciding how to respond begins with a clear vision of one's desired price position in the market. A high-low retailer, for example, must determine whether to protect margin rates or penny profit and track how these choices will affect the price gap with value-oriented stores. The goal is to remain competitive and keep customers loyal as rival strategies shift.

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Lessons from European retailers on managing vendor relationships

When suppliers inevitably pass along tariff-induced cost increases, retailers should have a firm understanding of their products' input costs. This knowledge helps them gauge the validity of vendor price adjustments and ensures they can negotiate from a position of strength. It also allows retailers to scrutinize any extra fees or changes in trade funding.

Promotions may become more pivotal in signaling value as base prices climb, so retailers will want to preserve vendor accruals where possible. However, they should avoid shifting too much volume to promotions alone. Recent trends in Europe suggest an interesting tactic: some retailers displayed signage indicating which brands had cooperated in controlling price hikes. Similar communication in the United States might be an option if certain suppliers are not transparent or collaborative.

Building robust pricing governance and exploring long-term supply options

Retailers often raise prices in direct response to new costs, yet many also rely on moving average cost reports that initially portray a rosier margin picture than reality. Over time, those internal metrics catch up to post-tariff costs, and margins gradually shrink. Rigorous pricing governance and precise reporting help decision-makers track these shifts more accurately.

In the longer run, retailers—and their suppliers—can look at altering sources of supply, including "nearshoring" or onshoring certain goods. They may also want to secure inventory before tariffs take effect, or refine private-brand offerings so they can better manage product specifications and keep prices accessible. The aim is to build agility and resilience into supply chains, so sudden tariff changes do not derail strategic planning.

Adapting to tariffs in the new Trump administration

Once tariffs are imposed, they can be surprisingly sticky. Even when administrations change, tariffs may persist, forcing retailers to cope with higher costs for an extended period. For many, that means focusing on efficiency and reducing operational costs, including overhead and non-merchandise spending. Maintaining a compelling value proposition remains essential as more budget-conscious consumers shop around for the best deals. Personalization can be vital in this environment, allowing retailers to deliver discounts or promotions to specific segments in a way that preserves margins while driving demand.

During Trump's first term, no one could predict precisely when or how tariffs would emerge. With potential tariffs aimed at China, Canada, and Mexico this time, forecasting is even more difficult. Retailers that accept this uncertainty and remain agile—staying prepared to update pricing, adapt sourcing, and reassess vendor relationships—will most likely weather any upheaval effectively. By putting the right strategies in place now, retailers can protect their profits, preserve customer loyalty, and thrive despite the volatility of potential new tariffs.