Tariff Talk: A guide for UK consumer & retail businesses

Announcements on a US tariff regime have sent shockwaves through international markets, leaving policymakers and businesses scrambling to adapt. Postponements, trade deals and court decisions mean there is continued uncertainty. For UK consumer and retail businesses, understanding and navigating these changes proactively without overcommitting to the wrong course of action is crucial to maintaining stakeholder confidence, underpinning profitability and ensuring frictionless operations.

This paper puts in one easy-to-read place the key tariff points:

Section 1: the impact on consumer and retail business

Section 2: the key actions to take

Section 3: for consumer and retail leaders to check current understanding and activities against

Arran Thoma

Director, Indirect Tax

KPMG in the UK

mail
call

Aruni Mukherjee

Partner, Indirect Tax

KPMG in the UK

mail

Section 1: Key points on tariffs at 1st June

The latest negotiations between the US and China have de-escalated trade tensions somewhat with reductions in tariffs being made on both sides throughout the 90-day pause which is welcome news, particularly for the global markets. However, there’s still a lot to play out over the summer and we await other case by case announcements as they are made by Washington and Beijing.

The US administration has reportedly indicated that it would not be possible to meet with over 50 trade partners in time such that a unilateral tariff (as already imposed on many countries) would be applied subject to further negotiations.

Those countries affected are expected to be informed by letter of the tariffs being imposed on their countries. Having already imposed 50% tariffs on over 60 trade partners, it would seem probable that this would be an indicative rate being applied going forward.

This is potentially concerning, even for trade partners where the US has a surplus, leaving continued uncertainty even for close partners such as the EU and of course the UK where the 10% tariff rate has already been crystalised.

So, what are the questions and options you’re facing into now? This article looks at the key measures announced, their potential impacts, and strategic considerations for consumer and retail businesses in the short, medium, and longer term.

Reminder of the key highlights

Effective 5 April 2025 a 10% tariff has been imposed on all countries including the UK.
An individualised reciprocal tariff regime will be imposed on certain countries although this is subject to a 90 day pause (running to the beginning of July), allowing time for negotiations.
From the 14 April 2025, the US and China have confirmed a reduction in tariffs imposed on each other. The outcome of these negotiations is that the additional tariffs levied on China will reduce from 145% to 30% (plus existing pre 2025 tariffs where applicable), while Chinese tariffs on certain US imports will fall from 125% to 10%. In addition, other non-tariff countermeasures such as critical mineral exports have been scrapped by China.
Other classes of goods including steel and aluminum and auto/auto parts have been subject to higher tariffs. Whereas the UK has successfully negotiated a trade deal on cars and steel on the basis that the US will now have greater access to the UK market for its agricultural products. This allows the UK to supply the US with up to 100,000 units at the 10% rate which is a reprieve for the UK’s steel and automotive industry.
Other countries are formulating their responses with negotiations continuing for key partners.
The de minimis threshold of $800 before customs duties are applied has been removed for shipments from China and Hong Kong.

Additionally, countries with a Digital Services Tax (DST) impacting US companies (such as the UK) may face specific tariff measures.

Section 2: Impact on the consumer and retail sectors

For many consumer goods businesses, the US is a major market and the introduction of tariffs could have a significant impact on the economics of doing business there. While this is less the case for retail given that direct sales into the US tend to be lower, nevertheless the industry is deeply intertwined with global supply chains, particularly those connected to China.

The removal of the $800 de minimis threshold for Chinese goods adds another layer of complexity, affecting margins and pricing strategies, notwithstanding contractual obligations which are signed and sealed months or years in advance.

These impacts don’t just affect retail and consumer businesses directly. They could even raise ‘going concern’ risks to suppliers that your business relies on (for example, if that supplier is based in China where tariffs of 125% now apply) as well as balance sheet implications on inventory.

It’s been speculated that this could even indicate a shift to a more positive trade landscape for ‘slow fashion’ whereby manufacturers committed to environmentally sustainable, ethically produced approach to retail could benefit from the tariffs imposed on less sustainable competitors from China and the Far East.

Overall however, the headline implications for the sector remain significant:

Eroded profit margins

Additional duties, the removal of the $800 duty-free threshold, and compliance costs could erode profit margins, making certain transactions, such as e-commerce fulfilled directly from the UK to the US, unviable.
Customer experience

Slower US customs clearances may lead to late deliveries, negatively impacting customer satisfaction.
Complexity in consignments

Mixed-origin goods may face additional complexities in applying the $800 threshold and calculating duties.
Increased costs of returns

The removal of duty drawback on goods subjected to additional tariffs could increase the cost of returns.

Section 3: Weighing up the strategic options

US consumers are very price sensitive – cost of living pressures have become as marked there as over here in the UK – and any increase to the ticket price of goods therefore risks a drop-off in sales.

Businesses that export into the US market need to review their supply chains and assess the scale of the additional tariff costs they will be exposed to, including the potential for being hit with tariffs on the origin of the components used in some goods. It is also essential to explore whether supply chains need to be remodelled or rerouted, consider customs mitigations such as ‘First Sale’, and review supplier and customer legal contracts to ensure that tariff costs are appropriately allocated between the parties in the supply chain.

After evaluating all these things, brands will ultimately have to decide whether it is worth continuing to sell into the US market and, if so, whether establishing or expanding a US production base would be more cost effective.

The likely outcome for many consumer businesses is that the scale of the US market is so valuable that they will continue to sell into the US from the UK, incur tariffs, and hope that the inevitable higher price point passed to the US consumer doesn’t hit demand too hard.

Short, medium and long-term actions

It is essential to get on the front foot, take ‘no-regrets’ actions now and formulate mitigation plans and strategies. The counter action to volatility in this environment is for businesses to take proactive steps to bolster resilience. For some UK businesses, thinking back to some of the lessons learned and actions taken as a result of Brexit may stand you in good stead – a potential advantage compared to many international counterparts for whom all of this will be entirely new.

Mitigation strategies to consider include:

Short-term strategies

Map global supply chains

Identify flows likely to be impacted by new tariffs and the cost of additional duties and non-tariff trade barriers.
Review contracts

Examine terms with distributors or aggregators to identify additional duties that may be recharged.
Customs valuations

Explore steps to reduce additional duties by reviewing customs valuation methodologies for US imports (including the ‘First Sale’ rule).

Medium-term strategies

Supply chain remodelling

Consider location analysis for changing suppliers or fulfilling orders from a US warehouse to benefit from preferential duty rates. Consider revising terms with suppliers and customers, such as returns policies.
Duty savings opportunities

Explore opportunities in classification, warehousing, Free Trade Zones, and customs reliefs to offset additional tariffs.
Tax structure assessment

Evaluate the impact of supply chain changes on tax structures, including transfer pricing and effective tax rates.

Long-term strategies

Re-think traditional supply chains

Consider new models for fulfilling US e-commerce or wholesale orders via cross-border shipments.
Customs technology solutions:

Implement self-filing tools and analytics to manage the new tariff landscape.
Financial planning

Engage in lender/borrower debt servicing, refinancing, and stress testing.

Conclusion: Proactive action you can take now

The continuing fluidity of the US tariff situation, as well as the need to understand how other countries are retaliating, demands that UK consumer and retail businesses remain vigilant and proactive with a global view on these changes. By understanding the potential impacts and implementing strategic measures, businesses can navigate these challenges and position themselves for success in a rapidly changing global market.

Gain a holistic understanding of how tariffs are impacting globally and get tailored expert advice by reaching out to us. Contact aruni.mukherjee@kpmg.co.uk and jeeven.pawar@kpmg.co.uk if you would like to discuss further.