A trade war between the United States and its three largest trading partners appeared to officially commence on March 4 – a development that, if unabated, will surely drive up prices on promotional products and other goods, potentially propel some shifts in the sourcing activities of distributors and suppliers, and possibly impact a broad range of merch end-buyers financially, inhibiting their ability to invest in swag.

The spark that ignited the commerce conflict is new tariffs that President Donald Trump placed on imported products from China, Mexico and Canada. Trump hit China-made goods with an additional 10% levy – a duty that’s in addition to a 10% tariff he placed on Chinese exports into the U.S. in February. The February tariffs themselves were a top up of pre-existing tariffs Trump slapped China with during his first term in the White House.

The average effective U.S. tariff rate on Chinese goods will be about 33%, said Nomura Chief China Economist Ting Lu. Per Lu, that’s up from around 13% before Trump started his second presidential term in January.

Trump also brought the tariff hammer down on Canada and Mexico, implementing levies of 25% on imports coming stateside from the U.S.' North American neighbors. The president established a 10% levy rate on certain Canadian energy products like crude oil.

Trump had given Canada and Mexico a month’s reprieve, suspending the tariffs initially in early February until March 4 in what was a stated effort to allow the nations to take stronger measures to prevent the flow of illegal migrants and drugs, like fentanyl, into the U.S. While there was beefed up border security and seizures, as well as high-profile arrests of cartel members in Mexico, it wasn’t enough to stave off the new duties.

“They’ll have to have tariffs,” Trump said.

Countermeasures

China and Canada didn’t take long to hit back, and Mexico was reportedly poised to release retaliatory measures later by Sunday, March 9.

Canadian Prime Minister Justin Trudeau said his nation would immediately start tariffing $30 billion CAD (about $21 billion USD) worth of U.S. goods, including alcohol, clothing and household appliances. Tariffs on another $125 billion CAD ($86 billion USD) worth of U.S. goods would take effect in 21 days if the U.S. levies remain on the books, Trudeau said. He called the U.S. tariffs unjustified, saying the unnecessary trade conflict will hurt everyday people on both sides of the border.

When it comes to tariff threats, every day seems to bring another twist. So just what the heck is going on with tariffs? This primer helps orient you on where things stand as of today and how the #promoproducts industry might be impacted.https://t.co/kDtgPgXzdK

— Chris Ruvo (@ChrisR_ASI) February 28, 2025

“Because of the tariffs imposed by the U.S., Americans will pay more for groceries, gas and cars, and potentially lose thousands of jobs,” Trudeau said. “Tariffs will disrupt an incredibly successful trading relationship. They will violate the very trade agreement that was negotiated by President Trump in his last term.”

China’s government announced that, effective March 10, it will be implementing additional tariffs of up to 15% on imports of U.S. agricultural products – though goods already in transit will be exempt until April 12. Beijing said imports of U.S.-grown chicken, wheat, corn and cotton will be subject to an additional 15%. Levies on sorghum, soybeans, pork, beef, seafoods, fruits, vegetables and dairy products will increase by 10%.

Additionally, China's Ministry of Commerce added 15 American companies to an export-control list. They include Skydio, a drone maker, and Shield AI, a startup backed by Andreessen Horowitz that makes artificial-intelligence powered systems for drones. “Inclusion on the list would prohibit Chinese export of dual-use items to these companies,” The Wall Street Journal explained.

China’s Commerce Ministry also added 10 American companies to China’s “unreliable entity” list. These firms are prohibited from exporting or importing in China or from making new investments in the country. The firms listed are TCOM, Limited Partnership; Stick Rudder Enterprises LLC; Teledyne Brown Engineering; Huntington Ingalls Industries; S3 AeroDefense; Cubic Corporation; TextOre; ACT1 Federal; Exovera; and Planate Management Group.

Promo Impacts

In February, the Yale Budget Lab estimated certain of Trump’s tariffs could cost the average household up to $2,000 more annually.

It’s not just consumer goods poised for inflation. Merch industry executives said promo product pricing will probably rise on a broad range of products, with hard good categories (including drinkware) expected to be among the hardest hit, due in significant part to the new China tariffs, as well as steel and aluminum levies Trump intends to place on imports of those metals from every nation on March 12 and reciprocal tariffs on countries around the globe that are slated for some time this year, with plans reportedly to be announced April 2. The costs and complications of cross-border commerce among North America’s nations will spike, too, they said.

New #tariffs announced yesterday on China, Canada and Mexico. Here’s what it could mean for the #promoprducts industry. https://t.co/8ZgsIhfLDs

— Chris Ruvo (@ChrisR_ASI) February 2, 2025

For products coming from China, some suppliers could be looking at cost hikes to import products at a “minimum increase of 10% and on drinkware up to 35%,” said Trevor Gnesin, CEO of Counselor Top 40 supplier Logomark (asi/67866) and a member of Counselor’s Power 50 list of promo’s most influential people. “The cost of these China tariffs are going to be passed on [by suppliers to distributors] by midyear.”

Executive Eddie Blau of Counselor Top 40 supplier Innovation Line (asi/62680) noted that U.S. suppliers exporting to, say, Canada will also be affected by the retaliatory tariffs that “make our products more expensive there.” It would be a similar case in Mexico if that nation introduces countermeasures. Suppliers will have to jump pricing in the U.S. to account for the steep tariffs, Blau said. 

"Suppliers will do their best to keep increases to a reasonable amount but, at a minimum, they need to cover these additional costs," Blau said. "Unfortunately, a huge percentage of everything we buy in America is going to cost more as we begin the new year."

Certain executives hope currency fluctuations and internal efficiency efforts by suppliers could help offset some of the price rises. But even if those happen, they’re not likely to offset all of the increase. Power 50 member Frank Carpenito, president/CEO of Counselor Top 40 supplier Gemline (asi/56070), told ASI Media that suppliers “without question” will be forced to increase pricing due to the China tariffs and other levies.

“Despite all of the efforts that suppliers take to minimize price increases, at these levels, it will be almost impossible for suppliers to fully absorb them,” Carpenito said. “We suspect that we will continue to see additional tariffs levied on additional countries across the globe, which would likely drive further price increases throughout 2025.”

While many suppliers will build these costs into the pricing of items they import and stock for sale stateside, there could also be instances in which suppliers ship from overseas and then expect the distributor to pay the duties themselves – adding to the overall cost of an order beyond the supplier-quoted price. One distributor recently shared a note in which a supplier told the distributor that he’d be responsible for the duties and that failure to comply would leave him “responsible for the consequences” with U.S. Customs.

“If you’re a distributor, expect a pay cut in 2025,” the promo pro said.

“Despite all of the efforts that suppliers take to minimize price increases, at these levels, it will be almost impossible for suppliers to fully absorb them.” Frank Carpenito, Gemline (asi/56070)

Promo imports the vast majority of products sold in the U.S., with China being the top sourcing destination. Importers, not foreign governments or manufacturers, pay the costs.

Supplier executives believe diversifying sourcing to more countries could accelerate if the China tariffs remain in place, while also sharing that Mexico, which was growing in popularity as a promo manufacturing spot, may lose some of its luster due to other competitor nations near the U.S. that are under lighter levies. "Mexico was looking good until today," Blau said.

Still, executives noted that for industry companies already not engaged in sourcing diversification practices, the shift isn’t going to happen overnight. “It’s a multi-year process,” said Power 50 member Jose Gomez, president/CEO of Counselor Top 40 supplier Edwards Garment (asi/51752). It’s also true, they said, that for some product categories China is the only really viable source.

CONFIDENCE DOWN:
In February, The Conference Board Consumer Confidence Index registered its largest monthly decline since August 2021, dropping seven points. (The Conference Board)

Some distributors in both the U.S. and Canada have said they will increasingly look for domestically made options because of the tariffs – or, in the case of Canadian distributors, look to purchase more directly from China-based vendors at the expense of U.S. suppliers. Some suppliers that specialize in made-in-the-USA said it’s been a strong start to the year.

“Year-to-date sales are up 25% over the same period last year,” said Colleen Shea, vice president of sales at New Jersey-headquartered All American Writing Instruments (asi/76811), whose products are made in the United States. “The number of unique distributors who have ordered from us YTD has doubled over last year. While I can’t be certain this is 100% due to a USA-made angle, I do feel this accounts for some of that increase.”

Industry executives said the tariffs, if they remain, could drive certain promo suppliers to reshore some production, but they don’t believe a massive return to made-in-the-USA is in the cards for the merch market. The steep costs of producing in the U.S., logistics of overhauling global supply chains to become domestic and need for fleets of workers make large-scale reshoring of promo production an unrealistic prospect, they said.

Some distributors are concerned that the tariffs will make products more expensive at a time when certain end-buyer industries, including automotive, agriculture and adult beverage to name a few, are dealing with potentially anything from higher importing costs (due to U.S. tariffs) to lost sales (due to countermeasures by other nations). That’s not a recipe for catalyzing merch spend.

“Tariffs are bad for our industry,” said Counselor Power 50 member Craig Nadel, president/CEO of Counselor Top 40 distributor Nadel (asi/279600). “They make our advertising medium more expensive. If products get expensive enough, some clients could switch to other things, like gift cards.”

For some industry pros, it feels like the only certainty is continued uncertainty about how everything will ultimately play out. Consumer confidence dropped sharply in February, according to The Conference Board.

“What happens next is beyond me,” said Anthony St. Peter, president of Stellar Lanyards (asi/89682), a Mexico-headquartered supplier with over a decade of experience importing products across the border. “We're ready though, and we have plans in place to minimize the effects this will have on our customers.”