News / Tariff deals – who will pay the costs? Maybe US shippers and consumers

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The US-China tariff negotiations will, reportedly, be extended for another 90 days, continuing uncertainty in the market.

The news came as the EU succumbed to 15% tariffs from the US, following a near-agreement over the weekend. 

But the question now will be how much of these costs European exporters are prepared to absorb, and how much will be passed on to the US consumer, with consequent lower demand. 

While the deal announcement was much heralded, it appears that many of the details need to be refined. There was, for example, confusion over whether pharmaceuticals, an industry currently being studied by the US, were included in the 15%; while there was no decision on wines and spirits. 

On the upside for Europe, the automotive sector now faces a 15% tariff rather than the global level of 25%, while aerospace is at 0%. And the EU will spend some $600bn on US military equipment and $750bn on energy. 

Most observers say the deal is better for the US, but that Europe has had one eye on Nato and defence. They also celebrated a degree of certainty – although the US has been inconsistent, and the White House told reporters that if Europe failed to live up to its investment pledges, it could raise the tariffs. 

The deal with Europe is expected to net some $90bn for the US – but the real question is who will pay, and whether tariffs will be retained if they cause high US inflation. 

Chinese exporters are not prepared, or able, to absorb the additional costs, and most will pass them on to the US consumer, said Kathy Liu, director global sales & marketing for Dimerco. 

“What we know is that customers will issue the invoice to the end customer in the US. And when we visited those customers in May, they had already received the invoice from the shipper for the extra tariff. 

“I think some of them are expecting the Americans to pay all of the cost.  They either have a charge item called tariff, or they receive a quotation which includes the tariff. So it’s likely that their pricing already includes the tariff. 

“It’s already happened at companies like Walmart. They are sourcing a lot of different products from China, but the price is increasing to include the tariff, so that the end consumers are already finding goods more expensive.” 

Walmart CEO Doug McMillon said, in an earnings call in May, that while the company would “do our best to keep our prices as low as possible … we aren’t able to absorb all the pressure given the reality of narrow retail margins”. 

He added: “We won’t let tariff-related cost pressure on some general merchandise items put pressure on food prices,” but acknowledged difficulties with some perishables from South America, such as bananas, avocados and coffee. 

“In some cases, we’ll absorb costs within a category or department and not simply pass on a tariff cost attributable to each item individually. But even at the reduced levels, the higher tariffs will result in higher prices.” 

And General Motors last week revealed a $1.1bn tariff impact on its Q2 results. CFO Paul Jacobson said: “Mitigation efforts will take time to yield results.  

“However, we’re still tracking to offset at least 30% of the $4bn to $5bn full-year 2025 tariff impact through strategic actions such as manufacturing adjustments, targeted cost initiatives, and consistent pricing.” 

The impact of tariffs so far on the US economy has been muted – front-loading ensured companies had sufficient tariff-free inventory, while they tried to absorb the cost. But it seems likely that, sooner or later, US consumers will start to feel the pinch. 

And the push by President Trump to bring more manufacturing to its shores may backfire. 

CEO of Flexport Ryan Peteresen told Bloomberg last week: “I haven’t met a single company that’s going to move more manufacturing to the US as a result of this. And I’ve met at least a dozen that have shifted manufacturing out of the US as a result of this.

“Very simply, if you’re manufacturing for export, you’re now paying duties on the way in for any components you’re using. So if you’re selling the product outside the US, you do not want to import the goods and pay all those higher costs.” 

Mr Petersen cited a bicycle company which manufactures in the US but which now has to pay tariffs on components – but not on finished bicycles. He noted: “So they’re just going to start manufacturing [outside the US].” 

A recent survey by Liberty Street Economics, based on businesses in New York and New Jersey, shows most passed-on some of the tariffs to customers, while one-third of manufacturers passed on all the cost increases. 

“Roughly half of businesses reported raising prices of goods directly subject to tariffs. Interestingly, a significant share of businesses also reported raising the selling prices of their goods and services unaffected by tariffs. Many businesses indicated they increased prices to cover other rising costs such as wages and insurance, though it is possible that in some cases, businesses were taking advantage of an escalating pricing environment to increase prices.” 

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