Key Takeaways
• Impact of Recent Tariffs: The Trump administration’s implementation of 25% tariffs on Mexican and Canadian imports, followed by exemptions on USMCA-covered goods, has created significant uncertainty. The administration plans to analyze global trade relationships and potentially introduce more widespread tariffs.
• Understanding the Levies: Tariffs are paid by the importer based on the original import value, not the sales price, said Andrews during the session. They’re intended to level out trade relationships by helping local manufacturers compete against cheaper foreign goods.
• A Bipartisan Issue? Tariffs on Chinese goods implemented by Trump in 2018 stayed in place during the Biden administration, but the economic landscape has shifted with high inflation and labor costs. Despite some diversification, the promo industry still heavily relies on Chinese imports.
• Strategies for Distributors: Communicate with clients about the impact of tariffs, focus on top prospects’ pain points, and lock in pricing by front-loading inventory, said Andrews. Working with trusted suppliers and avoiding direct sourcing can help distributors navigate the complexities.
It’s been a head-spinning few weeks.
Just two days after President Donald Trump implemented 25% tariffs on Mexican and Canadian goods coming into the United States on March 4, his administration gave both countries a reprieve in the form of exemptions on USMCA-covered goods (such as cars and agricultural products), until April 2.
It’s the latest in the tariff tit for tat that the Trump administration has been engaged in since the president took office earlier this year. To address questions about the impact of the levies on the promo industry, Tim Andrews, president and CEO of ASI, and Chris Ruvo, executive editor of news and content strategy for ASI Media, hosted a webinar on March 6 for more than 900 attendees to discuss an overview of where tariffs currently stand and what it means for the merch market.
In addition to the tariffs on Canada and Mexico and an additional 20% levy on Chinese imports, the administration says it will be analyzing America’s trade around the world and determine if reciprocal tariffs are appropriate.
“So far, the tariffs have been very focused on China, Mexico and Canada,” said Andrews during the conversation. “But in [early April], the administration says there will be more tariffs and it’ll be more widespread because they’ll be looking at our trade relationships with every country. So a diverse supply chain won’t solve all our problems.”
Missed ASI’s webinar on tariffs? Watch it on demand here.
What Exactly Are Tariffs?
The “will they, won’t they” uncertainty surrounding tariffs has markets fluctuating and business owners on edge. Meanwhile, Andrews laid out a few essential facts.
“Tariffs are paid by the importer, not the government,” said Andrews. “And the tariff cost is based on the original import value, not the sales price. So if the import value is $10 and it’s a 10% tariff, that’s a $1 cost.”
What’s the philosophy behind tariffs? Andrews explained that, ostensibly, it’s a way to level out an existing trade relationship.
“Tariffs are put in place because the government is trying to help the local economy and local manufacturers who the government decides are being unfairly targeted by other countries that are producing product at a cheaper price,” said Andrews.
Take China, for example. Twenty years ago, that country didn’t have the same environmental regulations and safe labor requirements as manufacturers in the U.S., which meant it could produce goods more cheaply. Tariffs “help the local domestic producers to have an equal footing,” said Andrews, who added that “Trump believes that other countries have gained unfair access to the U.S. market by selling goods at artificially low prices, and that that’s harmed the U.S.”
And why the constant flurry of announcements and subsequent walk-backs? Trump wants to take steps to correct uneven trade relationships immediately, said Andrews.
“Usually with a tax change you have months of notice, there’s public comment, businesses lobby,” said Andrews. “But Trump doesn’t think we need to wait because, as he says, countries are taking advantage of us. He’s a real estate negotiator – we’re just seeing it play out in public.”
However, calculating tariffs – done by U.S. Customs and Border Protection – can be complicated. Take a standard stick pen, said Andrews. That one item can have components with different tariff rates. All of that has to be accounted for and paid by the importer.
“This is another layer of complication for suppliers in what’s already a complicated world,” said Andrews.
The Reality Has Changed Since 2018
Andrews reminded the audience that tariffs implemented on nearly billions of dollars’ worth of Chinese goods in 2018 by the first Trump administration were kept in place for four years by the Biden administration.
But things were a bit different eight years ago, before COVID and high inflation.
“Every morning, businesspeople need to retool what they’re thinking about and what they’re communicating to their clients. That makes for a difficult time.”
Tim Andrews, ASI
“Businesses knew that tariffs were coming, and there was a lot of news coverage,” said Andrews. “Distributors did a great job educating their buyers, and suppliers did a great job managing price increases very modestly in the first Trump administration and through the Biden administration. They renegotiated some pricing with Chinese manufacturers and imported products from different countries.”
But eight years later, about 90% of promo still comes from China. Even though suppliers have since diversified their supply chains some, sourcing from countries like Vietnam, Cambodia, Turkey, Mexico and nations in Africa, this industry is still largely dependent on exports from China.
Additionally, the economic landscape has shifted. Over the past several years, North America has dealt with high inflation, including high labor costs, which makes any price increases even more painful.
The ambiguity, Ruvo added, “makes it harder for businesses to operate.” Fortunately, the promo industry has proven resilient in the face of challenges, said Andrews.
“Suppliers have adapted with robotics, smart sourcing and better management of expenses,” said Andrews. “Businesses love stability. They love to know what’s going to happen. … Right now the planning process is disrupted. Every morning, businesspeople need to retool what they’re thinking about and what they’re communicating to their clients. That makes for a difficult time.”
What Comes Next?
The promo industry will certainly have to contend with price hikes due to tariffs, said Andrews. The question is when and how much – suppliers and distributors have said to Andrews they anticipate end-buyers incurring a 7%-8% increase on products with a 20% tariff. In the meantime, suppliers continue to compensate by negotiating on price with factories and front-loading inventory to avoid duties.
Distributors can also strategize, said Andrews. He suggests shopping around for product from suppliers that are willing to negotiate. One thing Andrews cautions against is sourcing directly from manufacturers, particularly in an uncertain environment. Of note: If a distributor becomes the importer, the distributor is now responsible for paying any tariffs.
“Suppliers are equipped to do this,” said Andrews. “On a good day, importing directly is very tough for a distributor to do. Now, it’s very difficult. My advice to distributors is do what you do best – work with trusted suppliers, find clients and solve problems. Every hour you spend on sourcing is an hour you’re not spending with your clients on the front end.”
Distributors should also do the following, said Andrews:
- Communicate with clients – they need to understand tariffs’ impact on their current and future campaigns.
- Ask them about their business objectives for this year and listen attentively to craft solutions – what they share could be very different from 2024.
- Focus on top prospects’ pain points and strategize how to help them. “Think about the business you don’t yet have,” said Andrews. “That’s a way to counter these challenges. And put caveats on everything, because customers will expect that.”
- Lock in pricing by front-loading inventory when possible and warehousing it for longer, which is often cheaper than paying the tariffs.
In the meantime, ASI will continue to provide educational resources to help members navigate the waters.
“Pay attention and don’t panic,” Andrews concluded. “We just came out of a really nice year – promo is still an incredibly great way for people to advertise and market their businesses.”
The ASI Media webinar is available on demand here.
