The Impact of Tariffs on U.S. Importers and Foreign Suppliers

The imposition of tariffs by the Trump administration in 2018, particularly on steel and aluminum imports from China, has sparked a complex debate regarding who ultimately bears the cost. While conventional wisdom suggested that U.S. consumers would absorb these costs, recent research indicates that dominant U.S. importers often shift the burden onto foreign suppliers. This dynamic is particularly evident in industries with established buyer-seller relationships, where large buyers can negotiate lower prices, effectively insulating themselves from tariff impacts.

Market Power Shifts Tariff Costs to SuppliersNew York TimesTariffs Force Ed-Tech Companies to Innovate, Diversify, Raise Prices

A study conducted by Vanessa Alviarez, Michele Fioretti, Ken Kikkawa, and Monica Morlacco reveals that U.S. importers possess, on average, four times more bargaining power than their foreign suppliers. This imbalance allows major retailers like Walmart and tech giants like Apple to negotiate lower prices, resulting in foreign exporters often selling at minimal markups or even below marginal costs. For instance, during the 2018 tariff war, the pass-through rate of tariffs to consumers was only about 65-70%, indicating that a significant portion of the costs were absorbed by foreign suppliers rather than being fully passed on to U.S. consumers.

Market Power Shifts Tariff Costs to Suppliers

Walmart's purchasing power exemplifies this trend. As the largest retailer globally, Walmart can negotiate favorable terms with its suppliers, ensuring that tariff impacts on clothing imports are minimized. Conversely, smaller retailers lack such leverage and face higher costs. Similarly, Apple’s suppliers in China are pressured to absorb tariff costs due to the company's dominant market position, while smaller device manufacturers do not have the same negotiating power.

Market Power Shifts Tariff Costs to SuppliersNew York Times

The uneven impact of tariffs raises critical questions about market power and global supply chains. Large buyers capturing most of the surplus can weaken suppliers, leading to potential long-term consequences such as reduced investment in safety and labor standards. Furthermore, the study suggests that tariffs, often viewed as tools for protecting domestic industries, can exacerbate inequalities between large and small firms, as the effects are filtered through complex bargaining relationships.

Market Power Shifts Tariff Costs to SuppliersNew York Times

The education technology sector has also felt the effects of tariffs, with rising costs for imported technology forcing institutions to rethink procurement strategies. Tariffs have led to increased prices for essential items like laptops and classroom technology, impacting operational budgets and potentially delaying infrastructure upgrades. Educational institutions are adapting by exploring multiyear agreements and diversifying their supply chains to mitigate tariff impacts.

Tariffs Force Ed-Tech Companies to Innovate, Diversify, Raise PricesNew York TimesMarket Power Shifts Tariff Costs to Suppliers

While some reports indicate that companies have absorbed a significant portion of tariff costs, others suggest that the burden is gradually shifting back to consumers. For example, Goldman Sachs reported that companies had passed along approximately 37% of new tariffs to consumers while absorbing 51%. This discrepancy highlights the ongoing uncertainty regarding how costs will ultimately be distributed among suppliers, importers, and consumers.

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As global supply chains continue to face challenges from tariffs, climate change, and geopolitical tensions, understanding the dynamics of bargaining power will be crucial. The findings underscore the need for policymakers to consider the implications of market power in future trade interventions, as well as the importance of fostering resilient supply chains that can withstand external shocks. The evolving landscape of tariffs will likely prompt further adjustments in pricing strategies across various industries, with smaller firms facing greater challenges in navigating these complexities.

Market Power Shifts Tariff Costs to Suppliers

• “First, they suggest that the impact of tariffs on imported consumer goods is uneven.” — Vanessa Alviarez, Researcher

Market Power Shifts Tariff Costs to Suppliers

• “The organizations treating this as an opportunity to build operational resilience — rather than a temporary challenge to wait out — are positioning themselves for long-term success regardless of how the policy environment evolves.” — Quimby Kaizer, KPMG US

Tariffs Force Ed-Tech Companies to Innovate, Diversify, Raise Prices

• “We anticipate the tariff change to result in broad price increases for furniture in the U.S., dampen consumer demand and compressed industry margins in the short term for suppliers, manufacturers and retailers,” — Derek Schmidt, Flexsteel CEO

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• “There’s a lot of elasticity in the system,” — Richard Rosenfeld, Two Leaves and a Bud Owner

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