What tariffs actually look like

Tariff policy in 2025: Not a great topic to discuss in a weekly newsletter.

For those lucky souls who don’t follow the news, the US MAY have just completed a speed run of a trade war. Things have moved quickly… I’ve written and deleted this email several times.

On Saturday, America’s three largest trading partners — Canada, Mexico, and China — were hit with tariffs of 25%, 25%, and 10%, respectively.

But before the tariffs actually went into effect, Mexico and Canada were granted 30-day pauses. As of this writing, Trump and Xi were set to talk, potentially leading to a similar pause on the Chinese levies. (Update: looks like Trump and X are not talking today after all.)

I don’t know what is going to happen with US tariff policy. Maybe fewer than 5 people in the world have any idea how the next 30 days are going to play out. (And that might be generous.)

But at FS Supply, we do have a somewhat unique view of how tariffs work. Because — in the most direct sense of the word — we’re the guys who literally pay the tariffs.

Under the policy in place just 48 hours ago, if we were to import a product from Mexico, we’d get a bill from the federal government for 25% of the cost of the goods.

We pretty quickly pay that fee, or we run the risk of running afoul of Customs and Border Patrol (which isn’t advisable).

Of course, that doesn’t address a bigger question — one that’s currently being debated ad nauseam by the left and the right — which is: who ultimately bears tariffs’ costs?

And I think that’s unfortunately more complicated than anyone wants it to be.

Some recent studies have said that consumers bear most, if not all, the cost of tariffs. And that certainly seems true for products with a short shelf life and a straightforward supply chain — an avocado that’s marketed as “grown in Mexico” and that’s hit with a 25% fee after it crosses the border is undoubtedly going to end up with a higher price at the grocery store.

In that sense, tariffs are designed to guide consumers to US-based options …. California-grown avocados would all of a sudden be more price-competitive despite being grown in more expensive real estate.

But tariffs also kick off some more complicated interactions among suppliers and importers.

Many American importers of record spent the weekend pressing their foreign suppliers—asking them to lower costs to offset the margin losses under the new policies. I’m sure some of those conversations were successful — especially in China, where the economy is in a bit of a vibe-cession right now.

So in those cases, foreign suppliers bear the cost of tariffs.

And then there’s this: a not-insignificant number of Chinese manufacturers are spinning up new operations in Vietnam, Indonesia, and other countries unaffected by the current trade war.

This has been going on for years, and (I’m told) those efforts took on some urgency after it became clear Trump had a good shot at winning the 2024 election.

So, in those cases, foreign governments lose some of their tax revenue and bear the cost of tariffs. (Even when the tariff increases were merely hypothetical.)

So who bears the cost of tariffs?

It’s complicated.

PS: We’re working with foodservice and CPG companies to address major supply-chain challenges, including tariff mitigation and strategic planning. Respond to this email with the word CONSULTING to learn more.