November 20, 2024
Trump Tariffs: 5 Big Questions on How Promo Will Be Impacted
The incoming president has promised to raise tariffs across the board – compelling promo companies to consider adjustments to their sourcing and pricing strategies.
Key Takeaways
• Impact on Prices: Donald Trump’s proposed tariffs are likely to lead to higher prices for imported promotional products.
• Sourcing Shifts: Tariffs will further propel promo’s push to manufacture more products in nations outside China, but large-scale domestic reshoring of the industry’s supply chain doesn’t appear to be in the cards.
• Distributor Responses: Some distributors are preparing for new tariffs by notifying clients about potential price hikes and trying to shift their direct-overseas sourcing practices.
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Why does President-Elect Donald Trump favor tariffs?
If new tariffs are enacted, will prices on promo products rise?
Will promo companies relocate manufacturing – including to the U.S.?
And just like that, everyone is talking tariffs again.
Import levies were one of the signature initiatives of Donald Trump’s first term as president and for years threw the promotional products industry into a tizzy.
Now, the president-elect is poised to double down on tariffs in his second term, during which he’s pledged to impose duties of 10% to 20% on all imports into the United States. For goods coming from China, Trump has vowed a tariff rate of 60% or more.
The promo industry imports the vast majority of items it sells in the U.S. As such, the market has been abuzz with talk of tariffs since Trump defeated Vice President Kamala Harris in the race for the White House on Nov. 5.
While it remains unclear exactly what Trump will do with import duties and how quickly he’ll move once he enters the Oval Office in January, there are pertinent questions that can be addressed now. Here’s a breakdown of where things stand regarding five big tariff questions.
Q: What are tariffs and why does Trump favor them?
A: Tariffs are a tax the government imposes on imports or exports. They generate revenue for the government. In the case of import duties, the levies can help regulate foreign trade and, the thinking goes, safeguard domestic industry from being completely undercut by lower-cost overseas competitors.
Trump has called tariffs “the most beautiful word” in the dictionary. He views them as a sizable stick the U.S. can wield in international trade relations and believes they will help encourage more U.S. manufacturing, pumping up job growth domestically.
He also reportedly thinks money generated from tariffs can fill the gap in government revenue that will result from his plans to lower taxes on businesses and households.
“You see these empty, old, beautiful steel mills and factories that are empty and falling down,” Trump has said. “We’re going to bring the companies back. We’re going to lower taxes for companies that are going to make their products in the USA. And we’re going to protect those companies with strong tariffs.”
“We’re going to lower taxes for companies that are going to make their products in the USA. And we’re going to protect those companies with strong tariffs.” Donald Trump
Organizations and analysts say tariffs ultimately hit the budgets of many domestic businesses and households across the United States.
To wit, retailers that rely on foreign production say they plan to pass the cost of tariffs along to consumers. The National Retail Federation reported that Americans will lose between $46 billion to $78 billion in spending power annually on products that include apparel, toys, furniture, household appliances, footwear and travel goods if Trump proceeds with his tariff plans as stated.
Meanwhile, a study found that it would cost an average U.S. household $2,600 more annually if Trump proceeded with a 60% tariff rate on China-made goods and a 20% levy on all other imports.
In another analysis, the Peterson Institute for International Economics, a nonprofit nonpartisan think tank, determined that Trump’s tariff plan “would reduce after-tax incomes by 3.5% for those in the bottom half of the income distribution and cost a typical household in the middle of the income distribution about $1,700 in increased taxes each year.”
Q: If intensified tariffs are enacted, will suppliers increase prices?
A: Yes, it appears likely that widespread price hikes would occur in promo.
The precise percentage will depend on a variety of factors, including how steep the tariff rises are, the country of origin of the materials or products and a supplier’s preexisting financial position, which can affect the degree to which a company can absorb, if at all, any intensification of levies.
Also, some executives think China’s government may manipulate the country’s currency to make goods there less expensive, helping to offset (to an extent) the cost of tariffs for U.S. importers. That’s hypothetical though. Bottom line: The industry view as of now is that more tariffs will trigger price jumps in North America.
“If new tariffs are introduced, we will need to adjust our prices accordingly to maintain margins,” Yuhling Lu, CEO/co-owner of Counselor Top 40 supplier Ariel Premium Supply (asi/36730) and a member of the Counselor Power 50 list of promo’s most influential people, tells ASI Media. “The degree of adjustment will depend on the specific tariffs and any additional costs we incur along the supply chain. However, we’re committed to finding ways to minimize the impact on our customers.”
88%
of suppliers who import product do so from China. Only 22% of importing suppliers do so from Vietnam, the second-ranked country.(Counselor 2024 State of the Industry Report)
Jing Rong believes some products will get laden with heftier price tags but not necessarily all. “Price increases will be product-dependent in my view,” says Rong, vice president of supply chain and sustainability at Counselor Top 40 supplier HPG (asi/61966). “Some will go up, but others will not.”
A C-suiter at a prominent supplier firm who wished to remain anonymous says to expect product prices to elevate if steeper tariffs go into effect.
“We have largely absorbed other inflationary and non-inflationary increases over the past 24 months, so upward tariff adjustments would likely force us to pass them through in our pricing,” the executive says. “Obviously, we work as hard as possible to minimize price increases, but at the levels they are talking, it will be difficult for most suppliers to completely hold back.”
Distributors will then have to decide if they can swallow the higher pricing or pass (some or all of) the rises along to end-clients. It’s a prospect that worries certain branded merchandise executives, as they fear the promo medium could be priced out of competitiveness.
“Tariffs are bad for our industry,” says 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.”
Q: Will companies relocate manufacturing – including to the U.S.?
A: Tariffs could, with time, contribute to catalyzing some very limited reshoring of promo production. Relatedly, pricier imported products could help make domestically produced merch more cost-competitive.
Nonetheless, a sweeping return to Made-in-the-USA manufacturing for the branded merch industry is highly unlikely.
The common consensus among industry executives is that everything – from raw materials to labor levels to up-the-supply-chain support – needed to cost-effectively manufacture promo products at scale doesn’t exist in the U.S., neither now nor in the near future.
“The reality is you just can’t make everything here,” Jake Colvin, president of the National Foreign Trade Council, shared with CNN in a statement about manufacturing across industries.
“We’ll continue to reduce our exposure to China, as we have done for over 10 years now, and continue increasing the diversity and resilience of our supplier base.” Jose Gomez, Edwards Garment (asi/51752)
Instead of a Made-in-the-USA renaissance, suppliers – and distributors that import directly – are more likely to try to manufacture greater volumes of product in foreign countries other than China, a phenomenon that has recent examples in the retail world.
In fact, industry importers were already starting down that path before the first Trump administration. When Trump’s first-term tariff plan took effect, the effort accelerated and was then further compelled by the supply chain challenges of the COVID-19 pandemic.
Counselor 2024 State of the Industry findings suggest that geographic sourcing diversification may be leveling off, but executives expect that effort to expand beyond China to pick up if heightened tariffs hit the books. Even so, they don’t believe large amounts of production will return to the U.S.
“We’ll continue to reduce our exposure to China, as we have done for over 10 years now, and continue increasing the diversity and resilience of our supplier base,” says Jose Gomez, president/CEO of Counselor Top 40 supplier Edwards Garment (asi/51752) and a Counselor Power 50 member.
Edwards procures more than half of its products from countries in the Americas that have trade agreements, “therefore our exposure to trade costs and regulation changes related to China is lower,” Gomez adds.
Meanwhile, Rong says that HPG has taken an aggressive approach to diversifying its supply chain beyond China. “We are actively identifying and qualifying suppliers for our key products in other Southeast Asian countries,” Rong says.
Distributors that source directly from overseas vendors are engaging in action, too.
Valencia, CA-headquartered distributorship BlueMark (asi/142002) was researching and vetting manufacturers from which to get product made in Mexico prior to the election. Trump’s victory and tariff plans have hastened the initiative, and the firm is solidifying partnerships south of the border.
Nearshoring or Far Away? Exploring the Future of Mexican Manufacturing
The U.S. imported more products from Mexico than China for the first time in two decades. But the attractive proposition of nearby sourcing is tempered by real challenges.
“We’ve already begun partnering with suppliers in Mexico to reduce dependency on Chinese-manufactured products,” says Joseph Shusterman, CEO/co-founder of BlueMark. “In addition to avoiding [China] tariff increases, we believe the turnaround time from Mexico will be significantly shorter than the product coming from China.”
Of course, shifting sourcing to other countries doesn’t eliminate the tariff issue, as Trump has indicated he’s interested in duties on all imports, having mentioned a rate of 25% on Mexico-made products as possible. However, the import levies on other nations are, at the moment, in line to be less than those on China.
Given the potential tariffs on countries across the globe, some suppliers, like certain importers in other industries, are taking steps to minimize the impact in the short term, including getting more product landed stateside prior to the new levies.
“We’ve been evaluating different sourcing strategies, including front-loading shipments and exploring alternative suppliers, to manage any potential cost increases,” says Lu. “Our goal is to remain flexible and proactive, balancing inventory needs while managing cash flow and warehouse space.”
“No other country [than China] has the infrastructure to support what is required to manufacture the hard goods that we supply, and if they do the quality is terrible.” Trevor Gnesin, Logomark (asi/67866)
While companies work to mitigate deleterious impacts from tariffs in the promo industry, the fact remains that across the board import duties are likely to ratchet up importing costs – and thus product prices – for the industry.
Furthermore, even though China stands to be the most heavily levied, executives tell ASI Media that nation is poised to remain the dominant sourcing destination for merch, particularly with hard goods and more complex products like technology items.
“China’s manufacturing capabilities are hard to replicate or replace 100%, making it likely that many of us will continue sourcing from there despite tariffs,” says Rong.
Counselor Power 50 member Trevor Gnesin believes that manufacturing for apparel and other soft goods will continue to transition to countries outside China, but he doesn’t see many legitimate options for hard goods.
“For hard goods, there is nowhere else to go but China,” says Gnesin, CEO of Counselor Top 40 supplier Logomark (asi/67866). “No other country has the infrastructure to support what’s required to manufacture the hard goods that we supply, and if they do the quality is terrible.”
Q: How are distributors addressing the possibility of new tariffs?
A: Responses have varied. Some are taking a “why worry until something is on the books” approach. Others are engaging in considerable advance planning and prepping clients.
BlueMark, for instance, has started notifying customers of possible changes to pricing due to the looming levies. “By communicating early, we’re helping clients plan accordingly while maintaining transparency,” Shusterman says.
BlueMark is also reviewing options for reducing any tariff impact on orders the company imports directly. “We’re exploring the flexibility afforded in Section 321, which allows you to import $800 worth of goods for a single person daily duty-free,” Shusterman shares. “We believe that Section 321 offers great promise for our high-volume customers.”
Elsewhere, Counselor Top 40 distributor Fully Promoted (asi/384000) is communicating with the franchise owners in its network, helping to ensure they’re up-to-date with tariff developments and knowledgeable about what the levies could mean for their businesses.
“By communicating early, we’re helping clients plan accordingly while maintaining transparency.” Joseph Shusterman, BlueMark (asi/142002)
“We want to wait and see exactly what the tariffs will be before taking any definitive action, but we anticipate that we will increase prices on certain products,” shares Counselor Power 50 member Andrew Titus, president of Fully Promoted. “Our franchise owners remain our top priority, and we are carefully considering all scenarios and options to help ensure their profitability.”
Fully Promoted expects to start communicating with customers in the new year if the tariffs go into effect.
“We haven’t wanted to prematurely warn clients about any price increases, as we don’t want to alarm them when specifics are still to be determined,” Titus tells ASI Media. “Our franchise owners will communicate with their customers about any changes being made that will impact them. As always, we will provide our franchise owners with resources and information, so they’re prepared to communicate any changes or updates to their customers.”
When tariffs were implemented during Trump’s first administration, distributorship Whitestone Branding (asi/359741), a Counselor 2024 Best Place to Work, created a detailed “Tariff FAQ” that it shared with customers, an offering that addressed concerns tied to the duties while providing clarity on impacts. The firm could take a similar approach in 2025 but is waiting to see just what the new presidential administration does.
“Last time around, we didn’t experience too much friction with our clients,” says Joseph Sommer, founder and CEO of Whitestone Branding. “I tend to believe it might be the same case this time around. While I’m personally not in favor of the tariff policy, I do recognize that President Trump was transparent about his approach during his campaign. Since he won the popular vote, there’s an argument to be made that a significant portion of Americans are in favor of the tariffs, or at least are familiar and somewhat accepting of them, having been through it before.”
Q: Does Trump have the authority to impose tariffs? When might he?
A: Trump contends that he has the power to enact widespread tariffs, but his levy plans may face legal challenges from businesses/industry groups and resistance from Congress this time around.
During his first term in 2018 and 2019, Trump used Section 301 of the U.S. Trade Act of 1974 to place duties on China-made goods while also invoking Section 232 of the Trade Expansion Act of 1962 to sticker tariffs on steel and aluminum.
He didn’t encounter substantial pushback to his first-term tariff actions, but given how broad his plans are for his second term, some lawyers and business groups think he’d be exceeding his authority.
$74 Billion
The total duties paid on U.S. imports in 2020 following President Trump’s tariff actions in his first term. That figure doubled from $37 billion in 2015.(Congressional Research Service)
And now, lawsuits are already being loaded: The Consumer Technology Association and other industry groups told NBC they’re preparing to take on Trump’s new tariffs in the courts while also urging Congress to limit a president’s authority to impose tariffs. In September, Sen. Rand Paul, a Kentucky Republican, introduced a bill that would require Congressional approval for most tariffs.
Some analysts think legal challenges to Trump tariffs might find a receptive ear in the conservative-leaning Supreme Court. Meanwhile, legislators like Sen. Rick Scott, a Florida Republican, have said that Trump’s tariff plan would need a Congressional stamp of approval.
Is any of that likely to stop Trump moving forward if he decides to? Some analysts don’t think so. The upshot, they say, could be that the tariffs go into effect and importers have to pay them as legal battles take years to play out.
As it happened, the Congressional Research Service found that total duties paid on U.S. imports doubled from 2015, the year before Trump first took office, and 2020, the final year of his first term, rising from $37 billion to $74 billion.
Some promo executives ASI Media spoke with think Trump won’t immediately intensify tariffs so as to prevent an economy-wide inflation spike. Others disagree, suspecting the Republican will act relatively fast. “I believe the new president will follow through on his tariff plan, if not all the way, at least to some degree,” says the supplier executive who wished to remain anonymous.
Adds Rong: “The question is not if the tariff war will continue between China and the United States but how severe will it be.”
Outside promo, some analysts hold the view that Trump’s not going to sit on his hands when it comes to tariffs. Still, they think he may not institute all the levies at levels promised at once, keeping the threat of upping the duties as a chip to play in the poker match of international trade relations.
“It seems pretty clear that he would pursue tariffs soon after taking office,” Inu Manak, a trade policy fellow at the Council on Foreign Relations, tells CBS. “We would imagine that within a few months of him taking office, we would see the first tranche of tariffs taking effect.”
In light of that outlook, Rong says: “Any companies that don’t have a risk mitigation plan in place are putting their businesses at risk.”