Dive Brief:

• President Trump's latest threatened round of potential tariffs on an additional $267 billion in imports from China will likely cause noticeable price increases across consumer and industrial categories, according to statements from at least five major U.S. firms.
• Industrial distributor HD Supply Holdings, which specializes in construction, power, and infrastructure, said it will have to pass on an "unavoidable cost increase" if additional tariffs are enacted. On an earnings call last week, and before Trump's statement, the CEO explained the company had "adjusted prices" based on previous tariffs, but it had not done so enough to maintain margins on steel rebar, an affected commodity.
• Apple, Coors, Coca-Cola, and Winnebago have all said they either have had to raise prices already due to tariffs, or they will if this new set of threatened tariffs becomes reality. 

Apple prices may increase because of the massive Tariffs we may be imposing on China - but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now. Exciting! #MAGA

— Donald Trump (@realDonaldTrump) September 8, 2018

Dive Insight:

Trump's reaction to Apple's comment specifically, and corporate threats of price hikes more generally, has been to suggest that if U.S. companies don't like his tariffs, they should consider changing their sourcing. But is that realistic?

HD Supply produces 75% of its branded product in China. In the company's latest earnings call, CEO Joe DeAngelo said finding alternative sourcing would be possible, but that the process would take months, not weeks. Perhaps more importantly in the near-term, HD Supply CFO Evan Levitt broke down how price hikes can hit the customer even harder than the value of the tariffs might suggest. 

"So if you think about a 25% tariff, if you pass along that 25% cost increase to your customer that’s one thing. In order to maintain your gross margin rate, you would need to pass on and increase more likely 35% to 40% to maintain your gross margin rate essentially passing on a markup on the tariff. I don’t think that is realistic," said Levitt.

HD Supply deals more in raw materials than companies such as Apple or Intel, both of which submitted letters the U.S. Trade Representative during the comment period that ended Friday. 

"Our concern with these tariffs is that the U.S. will be hardest hit, and that will result in lower U.S. growth and competitiveness and higher prices for U.S. consumers," reads Apple's letter. 

Intel's senior vice president for corporate and government affairs, Greg Pearson, also wrote to the U.S. Trade Representative attempting to illustrate the difficulty of altering the company's sourcing with the example of an assembly plant in China. 

"Not only is it extremely expensive to move such a plant, doing so would disrupt an ecosystem of customers and contractors that has been developed over decades to provide customized and cost-effective products with time to market advantages," Pearson wrote. "We are puzzled as to why the Administration may be using tariffs in part to re-engineer global ICT (information, communication and technology) supply chains that have served U.S. companies so well."

Some companies, however, are exploring changing their sourcing to avoid tariffs. Walmart has reportedly asked beauty vendors to look outside China. And high-end furniture seller RH plans to reduce the share of its supply chain that depends on China.