There’s also concern the new levies will saddle end-buyers with heavier cost burdens that prevent or limit their ability to invest in branded merchandise.
President Donald Trump is imposing new tariffs on imports from Canada, Mexico and China, a move that could increase prices on promotional products, propel some further shifts in where certain industry products are manufactured and potentially limit end-buyers’ ability to invest in merch as they contend with higher costs.
Trump announced the new tariffs on Saturday, Feb. 1. He indicated that the levies will become effective Tuesday, Feb. 4. The president is imposing a 25% tariff on imports from Canada and Mexico, a 10% tariff on energy products (like crude oil) from Canada, and a 10% tariff on China-made goods that’s in addition to levies already in place on that nation.
The administration said there will be no exemptions, despite weeks of lobbying from key sectors like the automotive industry, which said broad tariffs will spike prices and cause North America-wide supply chain disruption. In all, the U.S. does about $1.6 trillion in annual business with the three countries.
Authorities in Canada, Mexico and China have indicated that countermeasures, including tariffs on U.S. exports to their nations, are coming, igniting what appears to be a trade war between the United States and its largest trading partners. To wit, Canada is looking to implement a 25% tariff on $155 billion (Canadian dollars) worth of U.S. goods.
Trump’s order on the new tariffs includes a clause that intensifies penalties for retaliatory tactics. The president said he has the authority to institute the levies under the International Emergency Economic Powers Act. He’s doing so, he said, to protect Americans, saying the levies are intended to get Canada, Mexico and China to step up efforts to prevent illegal drugs and illegal aliens from entering the United States.
“This was done,” Trump said in part, “because of the major threat of illegal aliens and deadly drugs killing our citizens, including fentanyl. We need to protect Americans, and it is my duty as President to ensure the safety of all.”
Promo Price Hikes A ‘Certainty’
U.S.-based companies that import products from abroad pay the tariffs, not foreign governments or overseas providers of products and materials.
Economists have said the new levies, if left in place, are likely to spur inflation in the United States, increasing the cost of everything from vehicles and groceries, to energy. Capital Economics, an analysis firm, has said that the 25% tariff on Canada and Mexico alone will keep the U.S. annual inflation rate around 3.2%, above the Federal Reserve’s target of 2%.
$1.6 Trillion
Annual business the U.S. does with China, Canada and Mexico.
(CNBC)
The upward price pressure will play out in the promotional products industry too, if the levies stay on the books. Suppliers may not hike prices overnight; it’s possible they’ll sell through inventory brought stateside before the new tariffs at current pricing levels. But once that stock is gone, suppliers will have to increase what they charge for products they pay more to import under the new tariffs.
Suppliers source the vast majority of promotional products sold in both the U.S. and Canada from manufacturers overseas, particularly in Asia, with China being the main production hub, especially for popular hard good categories like drinkware and technology items.
Meanwhile, Mexico has emerged as a popular spot for production of some promo categories, and China-based companies have even used Mexico as a backdoor for bringing products to the United States to avoid previously-in-place import tariffs.
Suppliers will now have to pay an additional 10% tariff on products they’re importing from China and an extra 25% on imports from Mexico (and Canada too, of course). At least some of that expense is going to get passed along to distributors and, ultimately, merch end-buyers.
“Price increases are an absolute certainty,” said Yuhling Lu, CEO/co-owner of Counselor Top 40 supplier Ariel Premium Supply (asi/36730) and a member of Counselor’s Power 50 list of promo’s most influential people. “No supplier is in a position to fully absorb these tariffs. The result is that some or all of the increase will be passed on. More expensive products within various categories will be the most affected, such as higher-ticket drinkware, bags, electronics and gifts.”
Tim Behling, vice president of supply chain and sustainability at Counselor Top 40 supplier Gemline (asi/56070), said that he anticipates pricing to rise on average by 5% or greater across promo.
Yuhling Lu illustration“Price increases are an absolute certainty.”
Yuhling Lu, Ariel Premium Supply (asi/36730)
Keep in mind, Behling said, the tariffs will probably produce a ripple effect: Promo suppliers and others will likely move at least some of the production that they can out of China to nations currently not slapped with tariffs, perhaps Vietnam or Indonesia.
Still, “as demand increases in countries not directly affected by tariffs, those countries will likely adjust their cost base upwards to take advantage of new/excess demand,” Behling said. “This means that while any new tariffs might target one nation, the price increases will likely spread regionally as supply and demand dynamics shift, and opportunities for profit gains tempt overseas manufacturers.”
In general, suppliers said they expect hard good products to see steeper price increases, particularly because many such goods continue to be made in China, whereas supply chain industry pros have spread production of apparel around more in recent years to other countries in Asia and even sub-Saharan Africa. They note that when it comes to hard goods, including tech products and drinkware, there are not many viable nations from which to source beyond China.
“If there are broad, across the board tariffs, it’s hard to imagine prices not going up,” said Pat Noonan, chief product officer at Counselor Top 40 supplier SanMar (asi/84863). “My assessment is also that it would likely be harder on the hard goods side of our industry. Those supply chains remain much more dependent on China than apparel and it will be more difficult for hard goods importers to find solutions outside of China.”
As products become more expensive, some industry leaders worry that end-buyers will decide against investing in merch or seek lower-priced goods, running against the trend of recent years in which higher-end products had become increasingly sought out, at least by some end-clients.
Executives also envision scenarios in which end-buyers could pull back on promo spending regardless of what happens with promo product pricing, simply because they are dealing with more burdensome operating costs as a result of tariffs.
“Tariffs are bad for our industry,” said Counselor Power 50 member Craig Nadel, president/CEO of Counselor Top 40 distributor Nadel (asi/279600). “They make our advertising medium more expensive. If products get expensive enough, some clients could switch to other things, like gift cards.”
Sourcing Shifts
Still, suppliers say they’ve been preparing for the tariffs and are trying to mitigate impacts on pricing and service.
“Suppliers across the industry may need to make pricing adjustments, but the extent will vary based on individual supply chain structures and sourcing flexibility,” said Samantha Kates, president of Canada-based Counselor Top 40 supplier Spector & Co. (asi/88660). “We are focused on exploring every avenue to minimize cost increases for our customers.”