Authored by Dr Jonathan Owens, Senior Lecturer in Operations and Supply Chain Management at the University of Salford’s Business School.
The pandemic highlighted that supply chains can be incredibly vulnerable to disruptions and, when assessing the current impact of these, it requires a variety of factors to be considered.
However, the impact of increased reciprocal tariffs on global consumers can vary depending on several factors, including the size of the tariff, the nature of the goods involved, and the specific logistics and supply chain dynamics. Here’s a general breakdown of how quickly these increased supply costs might trickle down to consumers.
Who absorbs increased costs?
In some cases, the increase in tariffs can lead to immediate price increases. For example, if the tariff affects a product that is in high demand or has limited alternatives, retailers or manufacturers may pass on the increased cost right away. However, industries with slim margins or high competition might absorb some of the extra cost to avoid losing customers. But this will only be short term before it is passed on.
For goods that depend on long supply chains, businesses might initially try to absorb the increased supply chain and tariff costs. But, if the tariff continues, they will almost certainly pass these costs down the line to consumers. In terms of timeframe, this might take a few months as companies reassess their pricing strategies. Some businesses may seek to mitigate the impact by finding new suppliers, redirecting supply chains, or shifting production to other regions, but these changes often take time to implement, stabilise and are often considered medium to long term strategies.
When will we start to see price increases?
For consumer goods, particularly electronics, automotive, digital, agriculture or clothing, the impact on prices might be more noticeable relatively quickly, especially if the tariffs significantly increase and are reciprocal as seen in a trade war. For larger or longer supply chains, often paying multiple tariffs can result in noticeable price increases for the end consumer relatively quickly.
The exact time it takes for tariffs and shipping cost increases to show up in global consumer prices depends on the industry. For industries that rely on seasonal stock, price hikes might become evident in the next product cycle (e.g. a few months). For industries with faster product turnover or more frequent imports, the impact could be observed sooner. However, getting the exact timing is very difficult, as you are trying to second guess what may happen with the tariff and how the competition may be absorbing the cost and reacting.
Sometimes, tariff increases can cause a ripple effect, where other industries or countries can potentially take the knock and adjust their pricing in response to the changes in global trade flows. However, this can further delay or moderate the impact on consumers, depending on market conditions. Subsequently, it may irritate the customer or force them to look elsewhere for a better priced product. Therefore, getting the ripple for each market area is important.
Ultimately, while some immediate price increases may happen, the broader effects, especially for consumers in markets that heavily rely on global supply chains, will likely take a few months to be fully noticeable, as businesses adjust their pricing structures.