Companies Struggle to Set the Right Price (because of tariffs)

Putting a price tag on your goods is a pretty basic issue for businesses. But tariffs are making it hard. A tariff will reduce supply. It will cause the supply line or curve to appear to shift to the left but actually it will shift upward by the amount of the tax. 

If the tariff is $1 per unit every point on the new supply line is exactly $1 above the old supply line. This because the firms in this market now need $1 more dollar for each quantity supplied. When you draw a graph of this the new supply line looks like it is to the left of the original supply line. See my post How Firms’ Reaction To An Excise Tax Determines The Market Outcome to see how this works graphically. One thing I don't cover there is how it would work with a percentage tax or tariff. The new supply line is to the left of the first supply line but it will be steeper since every point on the new line will be above the old line by, say, 10%. 

See From Hermès Bags to Sally Hansen Nail Polish: The Art of Jacking Up Prices: Companies try to charge more without tanking sales; ‘It will not be one-size-fits-all,’ LVMH finance chief says by Natasha Khan and Ruth Simon of The WSJ. Excerpts:

"companies say they are making plans to pass along at least some of the cost of tariffs to consumers." (see this post to see why the price might not go up as much as the tax or tariff)

"Hermès last week said it would raise its prices in the U.S., making American buyers swallow the entire cost of tariffs on European goods."

"The decision of how much to jack up the price is as much of an art as it is a science: Pass along the tariff cost entirely to the consumer and risk turning off customers for periods that could last far beyond this moment. But if companies decide to swallow the tariffs themselves, they could destroy profits."

"Hyundai Motor . . . has pledged to keep prices steady until June"

"Kimberly-Clark cut its profit forecast for the year in anticipation of $300 million in new costs from the global trade war."

"the company is looking to change where it sources some of its products."

"Some 47% of small businesses say they have increased prices since the beginning of the year, and 60% plan to raise prices in the next three months"

One executive says "there is consumer psychology to consider"

[one] "company is considering reducing the number of items per pack"

another "is running more pricing tests each week"

Related posts:

Trump’s Tariffs Are Unique in History: U.S. trade policy went through three eras, focused on ‘revenue, restriction and reciprocity,’ economist Douglas Irwin says. The 47th president likes all three Rs, and a fourth, ‘retribution.’ (2025)

Can Trump’s Tariff Offensive Deliver New American Jobs? (2025)

Americans Are Stockpiling Ahead of Trump’s Tariffs (2025)

Powell Warns of ‘Challenging Scenario’ for Fed as Trade War Rages (2025) 

How Much Do Tariffs Raise Prices? (2025)

Politicians talk about creating manufacturing jobs but do people really want them? (2025)

How some of Trump's policies might affect the economy (2024)

Tariffs are regressive: they fall more heavily on lower-income families who tend to spend more of their income on cheap imported goods (2024)

Americans Are Stockpiling to Get Ahead of Tariffs: Some consumers are snapping up computer parts, vacuum cleaners, coffee and olive oil before levies take effect (2024)