Manufacturers and Retailers Face Significant Cost Increases in 2019

By Zac Blanco, CPA, CFE, Business Assurance & Advisory Services Senior Manager | Manufacturing, Retail & Distribution Team

During 2018, manufacturers and retailers experienced their most significant industry wide cost increases in years, due to the tariffs imposed on various countries (primarily China) in trade agreements with the United States.

Tariffs are often a tool used to protect American businesses, but can also force businesses and consumers to pay more for imported products. Most recently, tariffs imposed in September 2018, effected close to 200 billion dollars of Chinese imports.

These tariffs were set at 10 percent in 2018 and are expected to rise to 25 percent in January 2019.

Many businesses are facing the struggle of how to cope with increased costs. Business owners large and small will need to decide whether to pass these increased costs on to the end consumer or take a hit to their own margins. Even businesses not heavily affected by tariffs are raising prices with the mindset of not falling behind the trend of those industries that are implementing significant price increases.

Tariffs Impact on Small Businesses

Outside of industry specific tariffs, the real impact has been on America’s small businesses. At a time when small businesses are booming, and companies are spending more than ever on logistics, technology, and labor increases, the tariffs impose a great challenge and additional hurdles making it even more difficult to compete with larger more established brands. With more extensive resources and the ability to absorb the impact, larger and more established businesses are utilizing their diverse supply chain and even relocating manufacturing bases to other countries to minimize tariff impacts and wait out the effects in the hopes of the United States reaching a deal to stabilize pricing. Small businesses without these resources are left to find a solution which often becomes passing costs on to consumers, decreasing their product offerings, or closing shop all together.

It remains to be seen if tariffs are effective and a lot will depend on the long-term results. If threats and implementation of tariffs leads to renegotiations of various trade agreements such as NAFTA or even the elimination of tariffs between the United States and other countries, the results may be worth the short-term impacts. In the meantime, business owners need to cope with cost increases and find creative ways to remain competitive.

Keiter’s Manufacturing, Distribution & Retail team partners with their clients to identify accounting and tax planning and savings opportunities. We can help your business navigate the challenges in today’s marketplace. Contact our team | Email | Call 804.747.0000.

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