How New Tariffs Could Reshape Consumer Spending & Brand Strategy

Lola Behrens, Content Marketing Manager

Contributor

Kevin Goodwin | VP of Digital Marketing & Strategy

Kevin Goodwin Headshot

February 7th, 2025


Understanding the New Tariffs

On Saturday, February 1st, the Trump administration announced significant tariffs on the United States' three largest import partners. The tariffs included a 25% increase on imports from Mexico and Canada and an additional 10% tariff on China. Initially set to go into effect on February 4th, the Mexico and Canada tariffs were suspended for one month to allow for negotiations - but the tariffs on China remain, with a 10% tariff on Chinese imports taking effect earlier this week.


Why The Tariffs Matter for Businesses and Consumers

Considering that these three countries combine to account for 40% of all U.S. imports, the economic implications are vast. Together, Mexico, China, and Canada account for over $1 trillion in goods imported annually. The U.S. automotive sector alone could feel significant blows, since the U.S. imports $208 billion in cars, $85.5 billion in auto parts, and $43.5 billion in delivery trucks from these nations. But the impact of these tariffs would be widespread, affecting consumers and businesses across key industries.

According to recent trade data, Mexico has now surpassed China as America’s largest trading partner, signaling a shift in global supply chains. Mexico, which accounts for 15.6% of imports, is a key supplier of produce (50-70% of U.S. fruit and vegetable imports), electronics, and auto parts. China, at 13.5% of imports, dominates in manufacturing and tech, including $103.2 billion in computers and $117.1 billion in telephones. Canada, which supplies 12.6% of imports, is a crucial trade partner, particularly for crude and refined petroleum, which together make up over $230 billion in imports from Canada alone. What's harder to quantify, however, will be the impact on what has always been a strong and friendly alliance between the U.S. and Canada.

The stakes of these tariffs are high. In the short term, they could disrupt supply chains and lead to product shortages if businesses decide not to absorb the increased costs. In the longer term, companies may be forced to pass these costs on to consumers, further driving up inflation and slowing economic growth.


How the Tariffs Impact Brands & Marketers

Even though tariffs on Mexico and Canada are temporarily paused, we anticipate tariff-related disruptions to persist throughout 2025 (and beyond). Brands must proactively develop strategies to mitigate both direct and indirect effects of these trade policies.

For brands directly affected by tariffs, the most immediate consequence is an increase in the cost of goods sold (COGS), which presents two challenging scenarios. If brands absorb the cost, they will experience reduced margins and increased cash flow pressures. If brands raise prices, however, they may see a decline in conversion rates and overall demand, which would have downstream effects on existing marketing efforts.

Beyond COGS, tariffs will also reduce consumer purchasing power, affecting spending behavior across categories. The Tax Foundation estimates that a 10% universal tariff would cost U.S. households an additional $1,253 per year, while a 20% tariff could increase costs by over $2,000. The American Action Forum predicts tariffs will add between $1,700 and $2,350 annually to household expenses. Of course, because retail categories vary in price sensitivity and substitutability, some brands will feel these effects more than others.


The End of the ‘De Minimis’ Loophole

One of the most overlooked changes in this new trade policy is the closure of the “De Minimis” loophole, which previously allowed low-cost imports to bypass duties and taxes. This was a core strategy for low-cost retailers like Temu, Shein, and Wish, enabling them to undercut domestic competitors. With this loophole now closed and the pricing advantage for these brands significantly reduced, there's a chance that this creates new tailwinds for traditional retailers. However, higher prices across the board may still depress consumer spending, which would effectively limit the potential upside for brands.


Strategies for Brands to Navigate the Tarif Changes

1. Analyze Your Audience & Price Sensitivity

Understanding how your customers react to pricing changes is crucial. Consider the following questions as you build out an action plan to respond to the latest tariffs:

  • Are your customers in the $100K+ household income bracket or under $50K?
  • Are you in a high-sensitivity category where consumers easily trade down for lower-cost alternatives?
  • Have previous price increases affected conversion rates, repeat purchases, or customer lifetime value (LTV)?

2. Managing Price Increases

While consumers expect price increases, transparency and strategy can soften the blow. Consider conducting a test on a segment of your audience: raise prices for 5-10% of customers to measure the impact on revenue and profit. Communicate clearly by being transparent with customers about why prices are increasing and what value they’re still getting. Offer value-adds by considering loyalty programs, enhanced return policies, or product sampling to maintain strong customer relationships.

3. Strengthen Brand Positioning

With purchasing power declining, standing out is more important than ever. Sharpen your unique selling proposition (USP) by using consumer research, reviews, and direct feedback to refine messaging. Invest in brand equity by prioritizing long-term brand-building strategies like PR, organic content, and community engagement. Engage with customers to better understand their concerns and trade-offs, helping you retain loyalty.


Final Thoughts: Preparing for Long-Term Market Shifts

The ripple effects of these new tariffs will be felt across industries in 2025. While there are challenges ahead, brands that take a proactive, data-driven approach will be better equipped to navigate shifting consumer behaviors, market disruptions, and competitive landscapes. By understanding your audience, strategically managing pricing, and doubling down on brand differentiation, you can emerge stronger despite economic uncertainty.

We'll be watching to see how the tariff saga plays out after the 30 day extension. In the meantime, subscribe to our newsletter and follow us on LinkedIn to stay ahead of the latest news impacting brands and marketers in 2025.

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