May 19, 2025

Hi, I’m Lauren Saidel-Baker, and thank you so much for joining me for this episode of TrendsTalk.

We’re talking today about one of the big trends, finally a little bit of clarity in the tariff front. That is to say, last week the tariffs on Chinese imports were lowered from 145% to just 30%. Now, reciprocal tariffs on U.S. exports to China went from 125% down to just 10%. While these tariff levels are only in place for the next 90 days, this is something of a reset. The expiration of these 90 days, if nothing else happens, we won’t see tariffs go back to those triple-digit rates, they’ll go back to just 45% and 34%, respectively. So this does seem to be a bit of a detente in the ongoing trade war.

What does that 30% mean? In our analysis here at ITR, 30% represents something of a sweet spot because that neutralizes a bit of the cost advantage that China has over U.S. domestic production, but at the same time, Chinese goods can still compete. So this 30% balancing act for a lot of businesses, that means they’re going to turn the spigot back on. We had been hearing about very low shipments coming from China. There were some very buzzworthy headlines a few weeks ago, even one headline that zero ships were inbound from China to U.S. West Coast ports of L.A. and Long Beach. So starting to fill that hole in inventories, we might see a little bit more activity and even a bit of frenzied inventory panicking to get goods onto ships and those ships onto U.S. shores in the very near term.

But beyond that, this brings some much needed confidence back to the market, a little bit of certainty where we haven’t had much so far this year. Let’s take that 30% tariff though and put it into context for a typical business. What does that really mean if you are importing some intermediate good or raw material from China? Well, let’s just say this hypothetical business, their cost structure is broken down about 50-50 between labor cost and material cost. So say they import 40% of their material from China, that 30% tariff would cause just a 6% total cost increase. That’s something that you will need to watch on the margin front, but it’s not going to make these products uncompetitive.

So 6% cost increase. This is still inflationary. I like to remind folks that at the end of the day, tariffs are still inflationary. And critically, those most recent CPI results, the ones that came in just a little bit lower than expectation, 2.3% consumer price inflation, that really is a continuation of the disinflationary trend. But to be clear, those April numbers do not yet. include the full impact of tariffs. So do expect a longer mechanism for these tariffs to work through the cost structure. It just takes more than a few months to see the full impact.

So whatever you’re doing, prepare yourself for those higher prices. Yes, watch your positioning if that’s out of China or elsewhere, but keep an eye on margins. That’s going to be the big pressure going forward.

As always, we hope to help you through these tough times here at ITR Economics. Be sure to like and subscribe and we’ll see you next week on TrendsTalk.