Price and Tariffs – What happens next?

With tariffs in the news–and on-again, off-again application, it seemed like it might be a good time to address this topic in class. Of course, it may be that this will be a topic you can address any time, including later in the semester, when you may be more likely to cover Price.

The Wall Street Journal article “How Much Do Tariffs Raise Prices?” (March 2, 2025) explores the impact of tariffs on consumer goods and how companies adjust their pricing strategies in response. The analysis, based on Moody’s economic models, reveals that tariff pass-through rates vary significantly across product categories.

For commodities like tablecloths, where many global suppliers exist, tariffs have minimal effects on consumer prices due to competition. However, sellers often pass nearly the full cost to consumers for niche products such as Italian wine because brand loyalty limits substitution. Producers have strong pricing power in premium goods with limited alternatives (e.g., iPhones, gaming consoles) and transfer most of the tariff burden to customers. The study also highlights how tariffs influence related markets—for example, washing machine tariffs in 2018 also led to price hikes for dryers.

These insights highlight the complexity of pricing decisions under trade policy changes, emphasizing the importance of elasticity, competition, and strategic pricing for marketing professionals.

Essentials of Marketing introduces tariffs in Chapter 3 and this post also has relevance for Chapters 12 (retailing and wholesaling) and Chapter 17 (Price).

The first draft of this blog post was generated by ChatGPT.

Class Discussion Ideas

In-Class Activities:

1. Tariff Pricing Simulation: Give students different product categories (e.g., electronics, clothing, food) and impose a hypothetical tariff. Ask them to determine if and how much of the cost would be passed to consumers.
2. Competitive Response Case Study: Assign students different brands (Apple, Nike, Tesla) and have them research how each company has adapted pricing and sourcing strategies in response to tariffs.
3. Tariff Policy Debate: Divide the class into groups representing different stakeholders (consumers, manufacturers, retailers, government) to debate the impact of tariffs.

Discussion Questions:

1. How do tariffs impact pricing strategies for different types of products? (Chapter 17)
   Answer Idea: Tariffs increase costs, but competitive pressures, demand elasticity, and brand strength determine whether businesses absorb the cost or pass it on.
2. Why do some industries experience higher pass-through rates than others? (Chapter 3)
   Answer Idea: Industries with few substitutes (like tech or luxury goods) pass costs directly to consumers, while highly competitive industries (textiles) absorb more of the cost.
3. What role does price elasticity play in determining how much of a tariff is passed to consumers? (Chapter 17)
   Answer Idea: Highly elastic products (like generic clothing) experience less price increase, while inelastic products (like high-end wine) see nearly full tariff pass-through.
4. How might businesses use marketing strategies to mitigate the impact of tariffs on consumer demand? (Chapter 12)
   Answer Idea: Companies might reposition products, offer promotions, or emphasize domestic production to maintain consumer interest.
5. What pricing tactics could companies use to stay competitive despite tariffs? (Chapter 17)
   Answer Idea: Strategies include cost-cutting, supplier diversification, adjusting profit margins, or emphasizing premium product features to justify higher prices.
6. How do tariffs impact domestic industries, and do they always protect local businesses? (Chapter 3)
   Answer Idea: While tariffs can benefit domestic producers in the short term, they often increase input costs, reduce competition, and can lead to higher consumer prices.