Retailers won’t swallow Trump’s ‘eat the tariffs’ demand for much longer before hiking prices

The retail industry is alerting President Trump that they can’t “eat” his tariffs forever – and price increases are likely to hit in the coming weeks, On The Money has learned.

Whether this gets translated into higher official inflation numbers is anyone’s guess at this point. But for many items enjoyed by Americans who like cheap goods brought in from abroad – a majority of them from China – these things will soon be getting a lot less cheap.

The warning to the president came weeks before his now-famous remarks over Walmart’s announced plans to pass through tariff costs to consumers, where in his own understated way, Trump shouted on social media that the discount retailer should “EAT THE TARIFFS.”

Walmart was the first out of the gate about its need to raise prices. However, Home Depot on Tuesday said it will continue to eat tariffs, though sources in the retail industry doubt that will last forever given the tight margins most retailers operate under.

When the price increases begin to spread, that could set up an interesting catfight between the president and a huge chunk of the business community.

The president believes Walmart, like many other big US companies, is a highly profitable company and they should all do a solid for the American people as corporate America adjusts to his new trade policy that slaps a 10% levy on every country, plus additional taxes on certain goods – and significantly higher tariffs on unscrupulous trading partners like China.

No one is doubting China’s intransigence on trade (trade-secret theft, currency manipulation and a lot more), of course. But Trump’s “eat the tariff” demand was a bit much for your humble correspondent, who has covered Trump Inc. for decades and has never seen him eat a cost when it came to his business dealings. Quite the opposite, actually.

Plus, the sweep of the Trump trade policy is so dramatic that retailers who source some goods mainly from China (think nearly every baby product) are now facing a certainty of a hit to their bottom line. These are public companies that have a fiduciary responsibility to shareholders, and if they can’t pass along costs they will begin layoffs.

Walmart earned a significant $15 billion-plus last year. Its ability to provide Middle America with affordable products – from apparel to food – is vital to its profitability. Unlike many retailers, it can spread tariff costs across many products so it can survive and eat tariffs for now. Those retailers that can’t – smaller shops with niche products–will be facing a difficult future.

By most accounts, the retailers’ warnings to the president about how they can’t just eat tariffs indefinitely were well received in the sense that Trump didn’t chase them out of the Oval, sources said.

As readers of the column know, Team Trump has been busy trying to work out compromises with trading partners, so in a sense someone in the White House including Trump himself must get some of what they’re saying. My retail industry sources say they expect further exemptions, stuff along the lines of Trump’s 2020 China trade pact that exempted baby items imported from there, and certain types of food.

There also seems to be a less hard-line stance from the Trump people, including the one-time trade hawk Howard Lutnick, and an air of compromise as the more trade-centrist Treasury Secretary Scott Bessent leads negotiations.

One unknown is whether the turmoil surrounding Trump’s initial trade scheme is baked into retailer price models, as suggested by the volatility in markets, including the recent spike in bond yields that foreshadow inflationary pressure from the price increases. When all is said and done, we aren’t going to zero tariffs with any country, even if Bessent manages to cut deals. That will lead to higher prices.

There is a political angle here as well. Trump was elected in part because President Biden seemed clueless to how his overspending stoked inflation, and then when the inflation rate came down, he had no clue that prices remained high and the wage rates for Middle America never caught up.

Yes, gas prices are down for lots of reasons in the early days of the Trump presidency, including oil traders pricing in a possible tariff-induced recession on top of inflation hitting certain products. More people out of work could mean a lower CPI. 

What’s unclear is how much the tariffs will hurt when all retailers begin forcing Americans to “eat” Trump’s tariffs in the coming weeks.

With the midterms just a year away, you can bet every GOP lawmaker in DC and beyond will be closely watching this diet.