Why U.S. Retailers Could Look To China

TOPSHOT – A mural by Berlin-based graffitti artist Eme Freethinker of US President Donald Trump and the lettering reading ‘Made in China’ is pictured on a wall at the Mauerpark public park in Berlin, Germany on April 26, 2025. China’s foreign minister has hit out at the “extreme selfishness” of tariffs, hinting at the steep levies imposed on Beijing by US President Donald Trump. (Photo by Tobias Schwarz / AFP) / RESTRICTED TO EDITORIAL USE – MANDATORY MENTION OF THE ARTIST UPON PUBLICATION – TO ILLUSTRATE THE EVENT AS SPECIFIED IN THE CAPTION (Photo by TOBIAS SCHWARZ/AFP via Getty Images)

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After a summer of rapid-fire tariff announcements, the U.S. trade picture is shifting in ways that will reshape holiday and beyond.

The cascade began with the sweeping “reciprocal” tariff in April, which applies to virtually all imported goods, with rates varying 10-50% by trading partner. On top of this universal baseline, Washington has layered targeted surcharges on categories such as autos, steel and aluminum, and copper, along with country-specific moves that will raise India’s overall rate to 50% on Aug.27. A 90-day extension of the U.S.–China tariff truce on Aug. 11 pushing any new duties until early November. This extension pauses planned hikes including those on Chinese goods, and keeps China’s existing rates unchanged. The pause shifts competitiveness back toward Chinese manufacturers just as retailers lock in Q4 production.

Inflation Impact Is Still Unclear

On Aug. 7, the Budget Lab at Yale updated its tariff model to include actions through Aug. 6. The report estimates an average overall effective tariff rate of 18.6% before substitution, with a short-run price impact of about 1.8% and an average household income loss of roughly $2,400, assuming no monetary policy offset.

One day later, the Bureau of Labor Statistics reported July CPI. Headline inflation rose 0.2% month over month and 2.7% year over year. Core inflation increased 0.3% on the month and 3.1% on the year. The numbers suggest that, for now, tariff pass-through has not yet driven a sharp reacceleration in consumer prices as effects tend to lag. Peak inflation impacts could hit as holiday inventory arrives on shelves.

Tariff Milestones

• “Liberation Day” Universal Tariff

Announced April 2, this measure applied a baseline duty to nearly all imports, with reciprocal rates varying by country. It is the foundation for today’s trade environment and applies across categories from apparel to electronics to food.

• Layered Sector Surcharges

Targeted Section 232 actions add extra duties for specific categories, including automobiles (effective April 3), auto parts (effective May 3), steel and aluminum (rates doubled to 50% in June), and copper-intensive products (50% of copper input value, effective Aug. 1). These charges stack on top of the universal tariff.

• IEEPA Legal Challenge (Late May)

The U.S. Court of International Trade struck down certain tariffs issued under the International Emergency Economic Powers Act (IEEPA) and issued an injunction. The Federal Circuit stayed that order, keeping duties in place pending appeal. The eventual ruling could have major implications for the durability of the current tariff framework.

• China Truce, Through Early November

The Aug. 11 extension prevents an immediate spike in China rates, keeping them steady into the heart of the holiday build.

• India Escalation, Aug. 27

A 25% surcharge will stack with the universal rate to reach 50%, with limited exemptions for goods already in transit.

Retail And Consumer Tariff Impact

Holiday Sourcing Tilts Back To China

With China rates frozen until November, retailers can land late October and early November goods under current terms. The India increase narrows its price advantage just as final holiday orders are locked, pushing some sourcing back toward China, reversing years of “China-plus-one” diversification. Several India-based suppliers report that orders placed earlier in the summer have already been canceled or redirected to Chinese factories in the days following the tariff extension. For retailers, these shifts are landing at a critical point in the production cycle, when manufacturing lead times for peak Q4 goods are already tight.

Toy Aisles Tell The Story

China supplies the majority of U.S. toys, and the sector has warned of higher prices and leaner assortments this year. President Trump’s remark earlier in 2025 that “maybe the children will have two dolls instead of 30” became a flashpoint, illustrating how policy debates can spill into consumer sentiment. While politically charged, it underscored a real dynamic: retailers may protect key toy price points by trimming accessories, narrowing SKUs or delaying less popular lines.

Metals Ripple Into Durables

Higher steel, aluminum and copper costs will filter through to lighting, small appliances, HVAC and electrical goods gradually, as contracts reset. Seasonal items like grills and heaters may see quicker increases as retailers decide whether to absorb costs or pass them on.

Shelf-Price Strategy

The Yale model’s 1.8% price impact aligns with retail plans: selective increases in metal-heavy and electronics-adjacent categories, balanced by deeper promotions and expanded private-label offerings to keep key price points stable.

Macro Risks Into 2026

Yale’s model, published prior to the late-August tariff escalation on India, estimated that current policies could trim real GDP growth by 0.5 percentage point in both 2025 and 2026 and raise unemployment by 0.3 percentage point this year and 0.7 point by the end of 2026. With India now facing a 50% duty on many exports, the inflationary and growth impacts may be higher than originally projected, particularly in categories where India has been gaining share from China such as textiles, footwear, and commodities. If the China pause lapses in November, costs for spring 2026 receipts could spike during the Lunar New Year production cycle. If it holds, a gradual “China-plus-one” sourcing strategy is still likely to accelerate without displacing China entirely.

The Retail Tariff Playbook

• Front-Load And Diversify Shipments

Pull forward Q4 orders under current China rates and use multiple ports to reduce congestion risk.

• Engineer The Bill Of Materials

Reduce copper and aluminum content, re-specify components and pre-buy trims ahead of India’s Aug. 27 increase.

Hold the line on key value items while recovering margin on higher-cost SKUs.

Review tariff-sharing terms and ensure product classifications are current.

Prepare for both renewed China hikes and a continued truce.

How Tariffs Could Impact The Holiday Shopping Season

Tariffs have become a standing policy tool rather than a temporary bargaining chip. The next flashpoint comes in early November, when the China tariff extension expires. If duties rise, in the middle of peak shipping for early 2026 goods, the industry could see a bifurcated supply chain strategy: heavy reliance on China for holiday 2025, paired with a rapid pivot elsewhere for early 2026 replenishment.

Between now and then, retailers must navigate a policy environment where trade announcements can swing sourcing math overnight. The winners will be those that can adapt quickly, negotiate strategically, and forecast beyond the next policy headline.