When the Government Raises Tariffs, Retailers Raise Expectations

And why ignoring this second hit could cost you more than the tariffs themselves.

In today’s retail landscape, every headline feels like a flare. Tariff hikes. Trade disputes.

Shifting global alliances. As a supplier, your instinct is to brace for impact. You update your landed cost estimates, watch your profit margins narrow, and maybe even call your freight forwarder just to get ahead of any logistics surprises.

But here’s the truth few people say out loud: Tariffs are just the first punch. The second hit?

Retailers raising the bar while your team is already stumbling.

It’s Not Just About the Cost Anymore

When the U.S. government announces new tariffs—say, a 15% hike on imported ingredients or packaging from Asia—the math feels straightforward (even if painful). Costs go up. You run scenarios. You might eat the margin loss temporarily or renegotiate with buyers to protect your profits.

But what’s less obvious—and way more dangerous—is how retailers react to the environment that tariffs create.

Buyers are under pressure too. They’re managing volatility, watching shifts in consumer pricing, and fighting for every point of margin they can protect. So what do they do? They get stricter. More compliance-heavy. Less tolerant of delays, defects, or weak promotions.

That’s where the real squeeze begins.

Fictional Example: The Snack Bar Squeeze

Let’s bring this down to earth. Picture a fictional brand: Fuel+Bar, a high-protein snack bar company with a cult following and placement in 1,200 grocery stores. Their wrappers are sourced from Vietnam, and a recent tariff bumps their packaging cost up by 14%. Their COGS increase overnight, and the margin on every bar tightens.

They respond how most brands would:

• Pause a planned influencer campaign

• Freeze hiring in the warehouse

• Push back the launch of two new flavors

All sound decisions, right? Except for one thing: They didn’t prepare for how their retail partner would react.

Their largest retail customer launches a nationwide “Fuel Up” promotion across 600 stores.

It underperforms. Why? Because the brand didn’t have budget left for marketing support. So what does the retailer do?

They deduct $38,000 in co-op chargebacks for “missed expectations.” No warning. Just a debit memo.

So Now You're Hit Twice

First by the government. Then by your customer.

And here’s the kicker: Fuel+Bar’s finance team—already scrambling from the tariff impact—almost codes the deduction as a “standard promotional cost” and moves on. No dispute. No recovery. No questions asked.

What’s Actually Happening Here?

Retailers aren’t being cruel. They’re managing their own version of chaos. When the cost of doing business rises, they turn inward—and they expect you, the supplier, to absorb more friction.

They expect:

• Flawless OTIF (On-Time-In-Full) delivery

• No excuses for chargebacks or shortages

• Higher performance in promotions, regardless of your budget cuts

• Fast resolution of invoice issues—even when your staff is stretched

The problem is, many suppliers are so consumed with fighting the tariff battle that they miss the second war entirely.

What Can You Do?

Here’s your playbook:

1. Audit every deduction. Don’t let chargebacks slide under the radar. Just because it’s labeled as “valid” doesn’t mean it is. Validate co-op, shortages, and compliance deductions thoroughly—especially when you’re under pressure elsewhere.

2. Tighten retailer communication. When your costs spike due to tariffs, loop your buyers in. Let them know how you're mitigating impact—and what support you can still provide. Transparency builds trust and can soften the blow of performance issues.

3. Use deduction recovery to offset tariff pain. This is your hidden budget. If you’re leaving $20K–$50K per quarter on the table in unauthorized deductions, you might have more money than you think to reinvest in keeping your retailer happy.

4. Budget for expectations, not just tariffs. Cost spikes are predictable. Retailer reactions? Less so. Pad your plan with contingency dollars not just for duties—but for retail friction, chargebacks, and freight variability.

Bottom Line: Tariffs Change the Rules. Retailers Change the Game.

Don’t get caught thinking this is a one-front war. If you’re a supplier trying to survive (or grow) in 2025, you need to see the full picture: Tariffs are external. Expectations are internal. Both will test your margins. But only one of them is in your power to fight.

Take Action:

 The best suppliers don’t just track tariff impact—they track everything impacting margin.

Let Woodridge help you uncover the hidden hits and build a strategy that protects your bottom line in every season.