Navigating tariffs: a survival guide for UK retailers

President Trump’s “liberation day” introduced sweeping new tariffs on US imports from countries around the world, shaking global markets and triggering widespread disruption across the retail sector.

At the time of writing, the US has paused its 20% “reciprocal” tariff on EU exporters, so tariffs on both UK and EU goods are now aligned at 10%. However, the US and China remain locked into a fierce tit-for-tat battle, with the US imposing a steep 125% tariff on Chinese imports, wreaking havoc on global supply chains.

Ben Cooke, partner at international law firm Addleshaw Goddard, has broken down the impact of the US tariffs on UK and EU goods in both the short and medium term, focusing on how they may affect exports, supply chains and US customer demand. Retailers will need to be strategic in navigating these changes, from reassessing pricing and distribution contracts to adapting their supply chains to mitigate disruption and remain competitive in a rapidly changing and unpredictable market.

Impact on UK/EU exports – short term

With the introduction of tariffs, the cost of importing goods into the US will rise sharply. The processing and manufacturing steps will determine the “country of origin” of goods and therefore the tariff rate that will be applied. Currently, this stands at 10% for most countries, excluding China, though this rate may change. The situation becomes more complex when raw materials and components for goods are sourced from multiple countries. 

Importers are typically liable to pay tariffs upon entry into the US, though in some cases, pricing mechanisms could result in the seller absorbing the costs.

If the goods are sold under the Delivery Duty Paid (DDP) Incoterms 2020, the seller bears the tariff.

Actions for retailers

• Check the origin of all goods to determine the applicable tariff rates.
• Review US sales and distribution contracts to determine who is liable to pay the tariffs.
• Consider pausing shipments until the global tariff position is settled. Big brands such as Jaguar Land Rover have already taken this action and Nintendo has paused the planned launch of the new Switch in the US.

Impact on UK/EU exports – medium term

In the medium term, retailers may be confronted with requests for price negotiations and potential standoffs if US contracts become unfavourable or unprofitable due to tariffs or currency fluctuations. Shifts in US consumer demand and competitors setting up manufacturing in the US to reduce the impact of tariffs may further complicate matters. For example, Hyundai has said it will invest in new manufacturing facilities and a steel plant in the US.

A focus on commercial priorities coupled with creative and pragmatic solutions will help mitigate supply disruption to the US markets.   

Actions for retailers

• Facilitate ongoing collaboration with US customers and distributors.
• During any contract renegotiations, consider:
• Pricing mechanisms to account for the impact of tariffs and further adjustments. 
• Including specific provisions to deal with the impact of currency fluctuations. 
• Sharing tariff costs based on achieving sales targets.
• Incorporating rights to terminate for convenience.

Impact on the supply chain

The specific impact on the wider supply chain depends on a complex interplay of factors, including global supply chain adjustments, currency fluctuations and international trade policies. 

UK/EU businesses that rely on importing goods from countries facing high tariffs may see an increase in their operational costs as prices are adjusted to compensate for US losses. The cost of importing goods into the UK or EU from these countries may also increase if suppliers reconfigure their supply chains to avoid tariffs or trade tensions cause fluctuations in currency exchange rates.    

Given China’s high tariff rate, retailers relying on Chinese suppliers may see disproportionate impacts compared to those sourcing from other regions, further complicating supply chain dynamics.     

However, if tariffs reduce exports to the US, countries may seek to expand trade with other regions, including the EU and UK, potentially leading to more favourable pricing. Or, the US may agree to a further lowering or exemptions, such as certain Canadian and Mexican goods into the US that are exempt. 

Retailers that can adopt flexible supply chains will be best positioned to adapt to and benefit from these changes.

Actions for retailers

• Map your entire supply chain to identify which suppliers and products are impacted by the new tariffs. 
• Monitor further changes to tariffs and their ongoing impact on your supply chain. 
• Engage in collaborative dialogue with suppliers to understand how tariffs might affect their costs and to find opportunities for better pricing.  
• Develop contingency plans to maintain supply chain continuity.

US customer demand and tariff mitigation

US demand for UK and EU goods could decrease due to increased tariff costs. This will partly depend on whether US customers have access to alternative products, if the goods are origin-specific (eg: Parmesan cheese or champagne) or highly specialised (e.g. advanced manufacturing parts). For example, luxury goods may experience little or no change in demand and be able to pass on the tariff cost to end consumers.

Actions for retailers

• Assess the ability of US consumers to absorb price increases.
• Consider alternative supply strategies, such as licensing products to a US supplier or appointing a distributor.
• Consider moving production to the US. However, businesses will need to consider capital investment within a fast-changing political landscape.
• Consider whether it is possible to enter an alliance with an established third party in the US, reducing the need for significant capital investment. 
• Multinational groups could look to leverage transfer pricing rules to reduce tariff-able value (eg: allocating some of the intra-group cost price to tariff-free IP licences). 
• Focus time and resources on alternative markets.