Tariffs have become a hot topic in today’s political landscape. While we’re not diving into politics, it’s essential to understand how they can impact businesses, consumers, and the economy. With rising tariffs on imports, both retailers and customers face new challenges… While there’s no one-size-fits-all solution, there are tools that can help maintain balance.
Tariffs have become a hot topic in today’s political landscape. While we’re not diving into politics, it’s essential to understand how they can impact businesses, consumers, and the economy. With rising tariffs on imports, both retailers and customers face new challenges. The reality is, businesses will need to get creative to maintain their profit margins. While there’s no one-size-fits-all solution, there are tools that can help maintain balance. As new challenges emerge, Buy Now Pay Later and consumer financing become even more relevant. To better understand how, let’s take a look at the current economic landscape
What Are Tariffs and Why Do They Matter?
At their core, tariffs are taxes imposed on goods imported from other countries. The purpose? To make imported goods more expensive, giving domestically produced goods a competitive edge. This can encourage businesses to shift production to the U.S., helping boost jobs and domestic industry.
Most governments use tariffs as a tool to strengthen their own economies. When a country imports more than it exports, it creates a trade imbalance. Tariffs reduce foreign goods entering the market, theoretically supporting local manufacturing and the domestic economy.
Who Pays the Tariffs?
Although tariffs are imposed by the government, it’s not the government that directly feels the impact. Instead, it’s the companies importing certain goods that pay the tariffs. For example, a U.S.-based electronics retailer importing smartphones from China will pay a tariff on those phones.
But it’s important to remember that a company’s primary goal is to make money and stay afloat. Anything that eats into a company’s profit margin triggers a fight-or-flight response, passing costs onto the customer. So, while the business pays the tariff upfront, you, the customer, are likely to feel the impact when prices rise.
The U.S. and Tariff Talks: A Changing Landscape
Recent tariff changes in tariff policies have made headlines. The U.S. administration is proposing higher tariffs on imports from China, Mexico, and Canada. In 2024, imports from these three countries accounted for over 40% of all U.S. imports 1 .
The rationale behind these changes is multifaceted: reduce the trade deficit, boost U.S. manufacturing, and protect domestic jobs. Historically, the U.S. has had lower tariffs than many other nations. But this new strategy aims to create a more favorable trade environment for American businesses. But at what cost? And to who?
The Pros of Higher Tariffs
Supporters of higher tariffs argue they boost domestic manufacturing. One of the main advantages is the potential for increased domestic manufacturing. By making foreign goods more expensive, businesses may shift production to the U.S., creating jobs and helping the domestic economy.
Additionally, tariffs can reduce the trade deficit. Historically, the U.S. imports more than it exports, contributing to a trade imbalance. Raising tariffs could, in theory, help reduce this gap by making imported goods less attractive to American consumers.
Higher tariffs could also boost tax revenue. As companies bring production to the U.S., they may pay higher taxes, funding public services and infrastructure projects.
The Cons: Higher Prices for Consumers and Businesses
Raising prices could drive customers away, hurting sales. On the other hand, absorbing the costs could squeeze already-tight profit margins, especially for businesses with slim margins.
While the idea of boosting domestic production sounds appealing, there are clear downsides. Higher tariffs lead to higher prices on imports, meaning everyday items—like clothing, electronics, food, and cars—could become more expensive.
Tariffs are usually calculated as a percentage of a product’s value. For example, a 20% tariff on a $20 product adds $4 to the price.
For retailers, this creates a tough decision: absorb the higher costs, raise prices, or find a balance between the two. Raising prices could drive customers away, hurting sales. On the other hand, absorbing the costs could squeeze already-tight profit margins, especially for businesses with slim margins. But it’s not just about the price of the product—it’s about the entire cost of doing business.
The cost of selling a product is often more than just the product’s cost. Retailers must cover operational costs, including marketing, rent, wages, and the increasingly complex supply chain. If they need to shift to U.S.-based manufacturers due to tariffs, it may come with its own price tag: higher labor costs, supply chain delays and longer lead times. Moving relationships from overseas suppliers to domestic ones might seem like a good way to avoid tariffs, but it’s no silver bullet. The cost of U.S. labor is generally much higher than in places like China, and U.S. manufacturers may not be able to offer the same economies of scale or efficiency. Retailers may need to stretch their operations—letting go of overhead, shrinking staff, or ramping up marketing efforts to sell the higher-priced goods just to stay afloat.
For instance, companies might have to invest more in marketing just to convince consumers that a higher price tag is worth it. This is no small challenge when consumers are becoming increasingly price-conscious, and the price increase doesn’t guarantee that customers will stick around.
How Tariffs Impact Retailers and Consumers
The economic ripple effect of tariffs is real. For example, Apple imports materials like steel and aluminum from China to make iPhones. When tariffs increase on these materials, Apple faces higher production costs. The company must then decide whether to absorb these costs or pass them on to the consumer.
In most cases, businesses will raise prices to cover additional costs. Consumers end up paying more for the same products. If the cost of an iPhone rises, customers may reconsider their purchase. Retailers need a strategy to deal with these challenges.
Real Retailers, Real Effects
So, what industries will feel the effects of these tariff changes?
On Wednesday, March 12th, President Trump increased tariffs on all steel and aluminum imports to 25% 2 . What does this mean specifically? Here’s how it could affect different sectors:
- Electronics: Apple may increase prices by 5-10% due to rising tariffs (source Cnet). Other retailers like Target and Best Buy also warned of price hikes across the board. Acer already raised prices on laptops after last month’s tariff hike 3.
- Cars: Car-loan delinquencies are at their highest point since the end of 2010. If the tariffs eventually take effect, car prices may rise by $2,000 to $12,200 depending on the model 4.
- Homes: Tariffs on steel could add up to $10,000 to the cost of building a home 6.
- Canned Goods: About 70% of the steel used in the US to make cans for food is imported today 7. Grocery prices are likely to rise.
Price hikes won’t be immediate; many businesses have stockpiles of goods with lower costs. But as new shipments arrive, consumers will likely start seeing higher prices.
What Are the Options for Retailers Facing Higher Costs?
The key for retailers is flexibility—finding ways to maintain profitability without alienating customers. In this environment, consumer financing can be a game-changer.
With tariffs rising, retailers need to get creative. If they raise prices too much, they risk losing customers. But absorbing the costs might cut into already thin profit margins.
Retailers might have to look for a middle ground. They could implement cost-saving measures elsewhere in their operations, such as streamlining their supply chain or reducing overhead costs. They might also choose to raise prices incrementally rather than all at once. The goal is to avoid overwhelming customers with significant price increases while maintaining profitability.
Flexibility is Key: The key for retailers is flexibility—finding ways to maintain profitability without alienating customers. In this environment, consumer financing can be a game-changer.
How Consumer Financing & BNPL Can Help
Recent estimates suggest tariffs on goods from Mexico, Canada, and China could increase household costs by $1,000 to $1,200 annually 5. This is no small change. And for retailers, it might make the difference between closing a sale or losing a customer.
Consumer financing, especially a smart BNPL (Buy Now, Pay Later) solution, can help businesses and customers alike. By offering flexible payment plans, retailers make it easier for consumers to manage price increases. Instead of paying the full price upfront, customers can spread payments over time, making it more manageable.
As the costs of doing business rise, financing options can no longer be an afterthought. Retailers must view these payment solutions as a strategic tool to keep sales moving despite rising costs and keep their customers loyal—even when faced with higher prices.
Conclusion: A Flexible Path Forward With Consumer Financing & BNPL
As tariffs rise and industries feel the impact, businesses must adapt. While higher tariffs bring both pros and cons, one solution stands out: consumer financing.
By offering advantaged consumer financing options, retailers can help customers manage higher prices without sacrificing profit margins. Whether they absorb some costs, raise prices gradually, or find a balance, BNPL allows businesses to stay competitive and keep customers happy.
In today’s ever-changing economic climate, consumer financing—especially a flexible BNPL solution—could be the key to maintaining growth despite rising tariffs.
NOTES
- What are Tariffs and why is Donald Trump’s administration using them, BBC.com ↩︎
- Trump tariffs of 25% on steel and aluminum take effect, CBSnews ↩︎
- Americans are racing to prep for tariffs, but many aren’t ready, Morninstar.com ↩︎
- Auto Tariffs in 2025 and Steel aluminium tariffs impact on consumer prices, CBSnews ↩︎
- American goods that could rise in price due to metal tariffs, BBC.com ↩︎
