Bad news for Best Buy customers: Executives warn that Trump’s tariffs could lead to higher prices

President-elect Donald Trump has signaled that he still plans to follow through on his campaign promise to impose tariffs on some of the U.S.’s largest trading partners, including China, Canada, and Mexico. In 2021, these three countries accounted for 42.7 percent of all goods imported into the United States, according to data from the Office of the US Trade Representative.

The doctrine of free trade

Tariffs are taxes placed on imported goods. In a world dominated by free trade, tariffs are a protectionist policy that violate the doctrine of the day that aims to see no policies imposed that limit the movement of goods throughout the world. Liberal economic theory, which has formed the basis of economic development in many high income economies, is premised on the idea that greater trade brings greater unity as economic bonds forge relations of mutual trust. The European Union, for example, is a liberal project, as it has brought together over twenty member states who for centuries warred against one another, and now share a single currency and market for goods. However, within these economies, corporate capital is granted a lot of power, and while profits grow, wages and the quality of life for workers can often stagnate or decline. Deteriorating economic conditions breed resentment, and Trump’s promise to impose tariffs feeds into that discontent.

The promise to increase American manufacturing

Some countries in the Global South have imposed tariffs to boost their domestic manufacturing sectors by making foreign goods more expensive, enticing consumers to buy locally made products instead. This strategy, known as Import Substitution Industrialization (ISI), hardly seems like a policy Trump would pursue, as it is tied to Marxian economic theories of development. Moreover, since the United States has lost much of its manufacturing base, there are relatively few ‘American’ goods available to compete with imports unless revenue generated by tariffs were redirected to bolster domestic manufacturing. Where ISI has been tried, there is often a nationalized industry that can accept government funding to grow.

If, in the long run, the Trump administration invests in domestic manufacturing, consumers may face higher prices in the short term as companies pass along the costs to them. Companies that sell electronics, such as Best Buy, could find themselves in a difficult position, as their overhead costs might rise by as much as 25 percent due to tariffs on goods from Mexico and Canada. Between 2015 and 2019, these countries accounted for 34.5 percent and 17.4 percent of all electronics imports, respectively. Very few details about where the money generated by tarrifs will be directed has been put forward by the President-elect and his team.

How high will the tariffs on China, Mexico, and Canada be?

Typically, the company importing a product bears the cost of the tariff but passes it along the supply chain until it reaches the consumer. If the Trump administration proceeds with its plan, consumer goods prices will likely rise. Companies have little incentive to absorb the cost of tariffs. Earlier this week, Trump posted more details about his plan on Truth Social, stating that “as one of [his] first Executive Orders, [he] will sign all necessary documents to charge Mexico and Canada a 25% tariff on all products coming into the United States and its ridiculous Open Borders.” For China, an additional 10 percent tariff will be applied to incoming goods.

Imports from China include products such as smartphones and computers. Depending on the tariff rate determined by the Trump administration, prices could rise by 10 percent or more if importers and retailers like Best Buy pass the costs on to consumers. Additionally, tariffs on Mexico could drive up production costs, as U.S. manufacturers rely on imported components such as insulated wires, cables, and conductors.

Claudia Sheinbaum, the President of Mexico, responded to Donald Trump’s proposals in a formal letter, explaining that Mexico would not sit by as these tariffs were imposed. President Sheinbaum noted that data from U.S. Customs and Border Protection show illegal crossings are down 75 percent over the last year and that law enforcement in her country continues to pursue drug traffickers.

The Mexican leader warned that “for every tariff, there will be a response in kind, until we put at risk our shared enterprises,” highlighting that U.S. companies such as General Motors, Stellantis, and Ford Motor Company are major importers of goods produced in her country. She emphasized that a trade war could jeopardize jobs and increase inflation for both nations.

Tariffs on Canada, meanwhile, could have broader economic impacts due to the record-breaking volume of petroleum imported from Canada over the past year. Tariffs on Canadian oil could drive transportation costs higher. While increased domestic production could help mitigate these impacts in the long term, ramping up output would require time and significant investment in infrastructure.

Best Buy leaders chime in on the impact tarrifs could have on consumers

In a call with investors and the media, Best Buy CEO Corie Barry was asked about the potential impact of Trump’s tariffs on the electronics and appliance retailer. Barry explained that her company has very little control over global supply chains, and for the products they manufacture, “the vast majority” has been “moved out of China.” She did not provide details about where production had shifted but stated that the impact of tariffs would depend on the import origin countries, the tariff levels, and the timeline for when the taxes would take effect. Nevertheless, the company remains committed to working with the administration to explain the impact tariffs would have on their customers and admitted that some of the cost “will also be shared by our customers.”

Of the products Best Buy does not import directly—around 97 to 98 percent of the goods they sell—China and Mexico are the largest exporters. While Barry stated that the costs of tariffs are often shared across the supply chain, with vendors and Best Buy absorbing some of the cost, she added that, in the past, customers have also shared in that cost.

Until the policies are announced and formalized the company will not publish any estimates on how much prices could rise for consumers, but the fact that leaders are speaking openly about the possibility, highlights the threat of higher prices that American households could face as soon as early next year.