Trump Wants Retailers To ‘Eat’ Cost Of Tariffs. Do They Have The Appetite?

Earlier this month, President Donald Trump told Walmart to “eat” the cost of the tariffs he is imposing on the foreign-made products the retailer sells.

Is it realistic to expect companies to pay the import taxes?

Economists and retail experts said it’s unlikely that retailers can “eat” tariffs for long, especially those that sell many items brought in from abroad. Most retailers have relatively small profit margins, meaning they only keep a small portion of each dollar they collect. And if retailers were to bear the brunt of tariffs completely, economists said it could have other economic consequences.

In April, customs collected $15.2 billion in tariff revenue from companies that bought goods from other countries. Retailers can foot some of the tariff bill. UBS Wealth Management estimates that a 10% tariff equates to a 4% increase in retail prices for consumers. And some businesses have found workarounds to reduce their tariff costs.

But while those tactics can reduce the amount companies have to pay, they still face higher costs, and analysts said it’s likely they will pass at least some of them on to consumers.

Profit Margins Are Already Tight

Three major retailers, Walmart (WMT), Best Buy (BBY), and Macy’s (M), will all find it nearly impossible to avoid raising prices, analysts at Seeking Alpha said in a commentary this week. Wal-Mart, like other retailers, operates at a small profit margin, giving it very little wiggle room, analyst Daniel Jones wrote.

“The prospect of the company eating any significant portion of tariffs is absurd,” he wrote. “Last year, Walmart generated a net profit margin of only 2.85%. This means that its ability to just absorb higher costs will be limited.”

Companies Bearing the Full Brunt of Tariffs Could Cost Jobs

Companies “eating” the full cost of tariffs would have economic consequences beyond inflation, wrote Anthony Chan, former global chief economist at JP Morgan Chase.

“Temporarily absorbing tariffs might win consumer goodwill, but once profitability plummets, companies would have no cushion to reinvest in store improvements, wages, or innovation,” he wrote. “Retail jobs would be at risk, capital expenditure would decline, and dividend payments could be cut. None of this would be sustainable or supported by shareholders.”