The post-COVID resurgence of in-person events has had a spillover effect on the branded promotional merchandise industry. Companies need giveaways to spread the brand, leading to increasing orders for branded promotional items ranging from apparel and office supplies to drinkware, electronics, and scores of other tools.
Unfortunately, the recent implementation of tariffs on goods imported from Canada, Mexico and China—the primary suppliers of many promotional products—are expected to have a profound impact on the promotional merchandise industry. There have been hints that higher tariffs may be coming for select goods from Europe as well. Although there is a certain amount of gamesmanship and negotiating going on, causing delays in the implementation, it’s a virtual certainty that changes are afoot.
This is an issue that will affect all of us in one way or another. We’re all in this together, and rest assured we as a company are exploring our options and looking for ways to limit the impact on our customers. That said, it’s important to acknowledge that the news is not necessarily all bad. With challenges come opportunities, and well-managed businesses will position themselves to take advantage of and thrive in this changing environment.
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Recent Tariffs: A Summary
Anyone who follows the news—and even those who don’t—have probably heard about the new or increased tariffs being imposed by the current U.S. administration on Canada, Mexico and China. Not only are these countries our largest trading partners, they are also critical links in the branded promotional merchandise industry’s supply chain.
Rather than debate the reasons behind these tariffs, let’s discuss how they affect the delicate business balance between the respective parties.
Tariffs on China
Earlier this year, the U.S. government imposed substantial tariffs on Chinese imports, with rates as high as 25% on certain categories of goods, including many that play a role in branded promotional items. These tariffs have significantly impacted industries that rely on Chinese manufacturing, including electronics, textiles, and plastics, forcing many businesses to adjust their sourcing strategies.
Tariffs on Mexico and Canada
Mexico and Canada, key trading partners of the U.S. under the USMCA (formerly NAFTA), have been affected by tariffs in the past, especially regarding steel and aluminum. Though some of these tariffs have—for the moment—been suspended, there remains a good chance that they will be revived, leading to uncertainty for industries that rely on cross-border trade. Both Canada and Mexico are significant suppliers of the promotional product industry, particularly in the North American market.
Impacts of the Tariffs
How are the tariffs expected to impact the promotional merchandise industry? There are two primary assumptions: increased costs and supply chain issues.
Increased Costs
Probably the most immediate and noticeable effects of new tariffs will be rising costs. Since many branded promotional items are sourced from China, Canada, and Mexico, tariffs will lead to higher prices for U.S.-based companies purchasing these goods.
Here’s how it will work: products like branded T-shirts, pens, mugs, and hats produced in factories located in China and Mexico were typically very cost-effective to import prior to the recent tariffs. As a result, these companies could charge very competitive prices. While manufacturing costs remain stable, the imposition of the tariffs mean manufacturers will have to pay more to export their goods into the U.S. This cost increase will be passed on to the company importing these products.
These importers, who rely on low-cost imports to maintain their margins, will be faced with a dilemma. Initially at least, and to their credit, many importers have promised to honor any price quotes made prior to the tariffs going into effect. That’s a generous offer and an incentive for consumers to get their orders in as soon as possible, but this policy won’t last forever.
Once the tariffs are finally imposed, these companies have a decision to make: will they absorb the higher costs themselves, or will they pass the price increase onto their customers? Absorbing the costs eats into already thin profit margins. Passing the costs on to clients might lead to reduced demand or even the loss of price-sensitive customers. Either path is unsustainable, leading to lower profits or, even worse, bankruptcy.
Supply Chain Disruptions
The impact of tariffs on supply chains extends beyond increased costs. Tariffs can also introduce significant delays in the production and delivery of goods as companies navigate the complexities of new customs procedures and regulatory requirements. These new tariffs could lead to shipping backlogs at borders and customs facilities, which would delay the arrival of products needed for scheduled promotional campaigns.
Moreover, as many promotional merchandise items are often produced on a just-in-time basis, delays can wreak havoc on businesses’ ability to meet tight deadlines. Clients have grown to expect quick turnaround times for branded merchandise needed for events or product launches. Tariff-related supply chain disruptions will create significant challenges for these companies, forcing them to either plan ahead to accommodate extended delivery times or pay more for expedited shipping to meet deadlines.
Finding the Silver Lining
What can companies do to mitigate the impact of Canadian, Mexican, and Chinese tariffs on their branded promotional merchandise? There are a few options that can turn obstacles into potential opportunities.
Develop New Sourcing Strategies
The first thing U.S. companies that import branded promotional merchandise for their clients will likely do to avoid tariff-related expenses is explore alternative sourcing options.
One obvious solution is to diversify production by shifting manufacturing to low-cost countries such as Vietnam, India, Bangladesh, or other Southeast Asian nations. While such an approach is helpful in avoiding tariffs, it’s important to understand that shifting production to new countries comes with its own potentially expensive challenges.
For instance, there will be initial setup costs to establish new supply chains, and businesses will need to invest in finding reliable suppliers in these regions. Additionally, these alternative countries may not have the same level of infrastructure or production capabilities as, say, China, forcing businesses to adjust expectations regarding product quality and delivery times.
While this strategy could offer long-term benefits, and any startup costs will be temporary, the transition may be difficult for businesses used to dealing with the comparatively efficient China, Mexico, or Canada.
Move Manufacturing to the U.S.
Some companies might look inward and consider reshoring production to the U.S. It’s an attractive option that would reduce reliance on foreign suppliers and eliminate risks associated with international tariffs.
In fact, U.S. manufacturing has expanded in recent years due to factors such as automation and competitive labor costs in certain sectors. Tariffs will almost certainly accelerate this trend by making overseas production less attractive due to higher costs and greater logistical challenges. Companies considering this option will likely find it easier to meet demand with faster turnaround times.
However, manufacturing in the U.S. has its own challenges. Labor costs in the U.S. overall are still higher than in China and Mexico, and you need to find people willing to work there. Also, surprisingly, the infrastructure for producing promotional items may not be as robust as overseas, requiring significant investment in new facilities, equipment, and training. While larger companies could absorb these costs, smaller companies may be unwilling or unable to make such an investment. Still, U.S. manufacturing could be an effective way to mitigate tariff impacts and reduce supply chain risks.
Adapt and Innovate
The recent tariffs also present significant opportunities for companies in the promotional merchandise industry to innovate and adapt to changing market conditions.
For example, ambitious businesses may explore new materials or production methods that are less reliant on imports from tariff-affected countries. Technologies such as 3D printing and automated production could help companies reduce dependence on traditional supply chains. The current climate is also favorable to seeking more sustainable production options, particularly as consumers become more eco-conscious. By exploring innovative solutions, the branded merchandise sector could reduce the impacts of tariffs while capitalizing on emerging trends in sustainability and technology.
Don’t Let Tariffs Hamstring Your Business
While new tariffs on Canada, Mexico, and China will assuredly drive costs up and create supply chain problems, these challenges are not insurmountable. By diversifying sourcing strategies, exploring alternative manufacturing locations, and embracing technological innovation, businesses will be able to navigate the complexities of tariffs and position themselves for long-term success.
OnFulfillment is already exploring options for dealing with the tariffs, and we’re confident our customers will not notice any significant difference in the coming months. If you’d like to learn more about what we’re doing to deal with tariffs, or how we can help you procure your branded promotional materials, just visit the contact us page and request a meeting.
