Tariffs on Imports: How They Affect Importers & Wholesalers

Importers, retailers, and wholesalers are the main businesses affected by tariffs on imports. This economic policy has the potential to cause significant disruptions in supply chains and the economy as a whole. In this post, we’ll shed some light on the impact of tariffs on wholesalers, importers, and other businesses. We’ll also explain how tariffs affect the cost of goods sold and how companies can combat their negative effects while benefiting from their advantages. If you’re interested in the effects of economic policies on companies, make sure to also read our posts on the effects of high interest rates on businesses and the impact of inflation on businesses.

Key takeaway: Importers and distributors are among the most affected sectors when tariff policies change. An import tax can lead to increased costs, inflation (how to deal with inflation in a business), and supply chain disruptions. Businesses can also benefit from turbulent times by changing their focus and improving their efficiency.

What Are Tariffs on Imports

A tariff is also called an import tax as it’s a duty imposed by the government. Tariffs can be imposed on goods from a certain category or on all items imported from a selected country. Usually, tariffs on imports are a fixed percentage of the price of imported goods. Variable tariffs are also a potential economic policy in which the imposed tax varies based on the price of the goods imported.

There are a few reasons why a country might decide to impose tariffs on imports. Here are the main ones.

1. To collect additional taxes from imports;
2. To protect local manufacturers from foreign producers who use non-tariff barriers to trade (cheap labor, currency depreciation, regulations, or subsidies);
3. To correct trade imbalances, especially if the country experiences a trade deficit;
4. To be used as leverage while negotiating a trade deal.

How Tariffs on Imports Impact Distributors and Importers

Companies that import products from other countries are the main ones who feel the impact of this economic policy. Even though some of them can carry the tariff cost to their clients or renegotiate pricing with manufacturers, importers are the first who will have to deal with this additional tax. Here’s how tariffs on imports impact importers and wholesalers.

1. Increased costs. Tariffs directly increase the cost of imports. As such, importers might experience cash flow problems. The need to carry (at least some) of the cost to customers is also likely to reduce profitability.
2. New supply chains. Imposing tariffs on imports often leads to a reshuffling of the supply chains. Depending on how high the tariffs are, businesses may choose to import products from other countries or focus on wholesale sales from domestic manufacturers.
3. Reduced demand. As tariffs often lead to inflation, the demand for certain products might dwindle. This can cause reduced revenue and limited profitability in certain niche markets.
4. Losses from long-term contracts. Distributors often plan their inventory and storage months ahead. In fact, some might have long-term commitments with manufacturers that stretch years ahead. Tariffs can make such contracts a heavy burden on businesses.

How to Combat Tariffs on Imports

Companies can do a lot to fight the negative effects of tariffs on imports and build a resilient and recession-proof business. In fact, importers, wholesalers, retailers, and other businesses that are affected the most by import taxes can also benefit from these economic policies. Here are a few ideas on how to combat tariffs.

1. Establish short and local supply chains. If your product sourcing capabilities are focused on partnerships with local manufacturers, you’re less likely to feel the negative impact of import taxes. Make sure to find suppliers and manufacturers that are local and minimize imports. This can also help your marketing efforts as many customers prefer to buy US-made goods.
2. Improve efficiency in operations. Proper inventory management, automation, and increased efficiency can lead to significant savings and improve profit margins. This can allow companies to minimize the effect of tariffs and other economic policies.
3. Refocus your business. There are some areas that feel little to no negative effect from tariffs. For example, food and agricultural supply chains and the food and beverage industry are not as impacted as importers of electronics. Thus, companies can change their focus to areas that are less affected by import taxes.
4. Renegotiate. Although importers pay the full cost of tariffs, that doesn’t mean they can’t carry the cost. Large businesses can use leverage to renegotiate prices with manufacturers and exporters from other countries.
5. Monitor policy changes. Tariffs are often used as a negotiating tool to secure a more favorable trade deal. Thus, they might be a short-term policy that is prone to change once the government achieves its goals. Businesses should engage with trade associations to anticipate policy shifts and advocate for changes themselves.

Frequently Asked Questions about Tariffs on Imports

Do you want to know more about the effects of economic stagnation on businesses? Or perhaps you’re interested in increasing your B2B sales? You’ll find information on these topics and many more on our website. Below we’ve answered some common questions about the impact of tariffs on imports.

How Do Tariffs on Imports Affect Consumers?

Tariffs are expected to have a negative impact on consumers, especially in the short term. That’s because of their inflationary effect and the need for companies to create new supply chains or modify the existing ones. It’s unclear how these policies will impact consumers and the economy as a whole in the long run. They might lead to vast supply chain disruptions which can cause inflation. On the other hand, the main goal of tariffs is to protect local manufacturers and create new jobs in the manufacturing sector. If they achieve this goal, this will reduce unemployment and will impact the economy positively.

Who Pays Tariffs on Imports?

Tariffs are a tax on goods (or services) that are being paid before these items can be released from customs. As such, the tariff is paid by the company (or individual) that imports these products. The cost of import tariffs can then be carried to customers by increasing the final price of the product. Alternatively, some importers might choose to renegotiate wholesale prices with suppliers. The main goals of tariffs are to make imported goods less competitive, to encourage businesses to purchase goods manufactured in the country, and to increase tax revenue while stimulating the local economy.

What Industries Are Affected the Most by Tariffs on Imports?

Although tariffs impact the whole economy, there are industries that feel their effect more than others. Importers, especially the ones that import goods from countries with high tariffs, are the most affected by tariffs. Retailers will also feel the immediate effects of tariffs on their merchandise. Manufacturers are also affected by tariffs. The ones that have offshored their manufacturing operations will either need to reshore their manufacturing or pay the toll of tariffs. Logistics companies and those in the field of distribution will also be significantly affected due to the supply chain disruptions caused by tariffs.

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