Looming Trade War Is Upending Supply Chains

The combination of Biden administration tariffs, Trump’s proposed increases, and changes in China trade relations will impact U.S. private label and direct-to-consumer brands, driving some to reconsider sourcing strategies in 2025.

Private label and DTC products are merchants’ highest-margin items. While relatively few retailers or DTC brands manufacture in-house, the products tend to remove several “middlemen,” often more than doubling profits.

A pet food retailer, for example, might clear 25 points (0.25%) on a popular premium dog food brand and 55 points on its own private-label version despite both products being manufactured at the same facility using similar recipes. A dog owner will pay about the same price for the private label brand or, perhaps, even a little less.

U.S.-imposed tariffs and changes in China trade relations could remake supply chains.

Private Label Sourcing

Private-label brands on U.S. retailers’ physical and virtual shelves come from factories worldwide, including China and Mexico.

Brand managers identify gaps in the market and then find a manufacturing partner to build, sew, or make products to fill the void. Amazon does this with more than 100 private brands representing thousands of products.

Selecting a manufacturer for these products involves factors such as quality, price, reliability, regulatory compliance, and — recently — trade tariffs or policies.

Trade Situation

Tariffs were top of mind for a group of private-label brand managers discussing their 2025 plans around a large conference table during a meeting in November 2024.

I had been invited to learn more about their businesses, which include 30 private brands with hundreds of products sold through a network of 800 stores and 30 ecommerce sites. My task was to help with potential promotion and go-to-market plans, but each manager noted the shift away from China.

While the broad topic was “tariffs,” the managers zeroed in on three specifics that could impact their private brand relationships in China.

• In May 2024, the Biden Administration announced it would increase Chinese tariffs on some strategic goods. Top tariffs moved from 7.5% to 25% for steel, 25% to 50% for semiconductors (by 2025), and 100% for electric vehicles.

• President-elect Donald Trump has proposed a 10%-to-20% overall tariff on imports, a 60% tariff on many Chinese goods, and tariffs ranging from 25% to 100% on Mexican imports.

• U.S. Representative John Moolenaar (R-MI) introduced the “Restoring Trade Fairness Act” on November 14, 2024, which would revoke China’s permanent normal trade relations status.

These tariff and policy changes could substantially impact the U.S. retail industry.

The National Retail Federation estimated that increased tariffs would cost American shoppers “between $46 billion and $78 billion in spending power each year.”

“Retailers rely heavily on imported products and manufacturing components so that they can offer their customers a variety of products at affordable prices,” NRF Vice President of Supply Chain and Customs Policy Jonathan Gold said. “A tariff is a tax paid by the U.S. importer, not a foreign country or the exporter. This tax ultimately comes out of consumers’ pockets through higher prices.”

But Jan Kniffen, the CEO of J. Rogers Kniffen WWE, a retail investment consultancy, disagrees. He told CNBC he was “less concerned about the tariffs than it seems a lot of other people.”

Kniffen noted that when President Trump introduced tariffs in 2018, Chinese manufacturers desperate for access to U.S. markets absorbed them.

“Last time we put on tariffs, nothing really happened. We didn’t see a big rise in inflation. We didn’t see a cratering of retail profits,” Kniffen continued.

According to Kniffen, the Chinese economy is far worse now than it was six years ago, perhaps meaning that Chinese factories would lower prices again to absorb new tariffs.

Sourcing Behavior

Regardless, the private brand managers sitting around the table planned to leave China not just because of tariffs but also due to unpredictable relations, supply chain stability, and better margins.

Depending on the product, those managers suggested manufacturing in other Asian nations, partnerships in Europe and South America, or, better still, working with U.S. suppliers.

The group has even purchased its first U.S. manufacturing operation, controlling its own fate while improving profits.

This strategic pivot may reflect a broader trend toward supply chain diversification and a domestic manufacturing renaissance, potentially reshaping the future of private label and DTC brands in the U.S. market. Moving manufacturing closer to consumers will likely be a top priority in the coming years.

Ecommerce in Brazil: Growth Despite Hurdles

Retail ecommerce in Brazil more than doubled to 185 billion reais ($34.5 billion) in 2023 from $70 billion reais in 2018, while the average order increased in the same period from 435 reais to 470, according to the Brazilian Electronic Commerce Association.

By comparison, U.S. retail ecommerce sales in 2023 were $1.14 trillion, per eMarketer.

In Brazil, perfumery and cosmetics had the most online orders in 2023, followed by home and decor, health and food, and beverages.

Electronics in 2023 represented 31% of total ecommerce revenue, according to ECBD, a Brazil-based analysis firm, followed by fashion at 27%, hobby and leisure at 14%, and furniture and homeware at 11%.

Mercado Livre holds a dominant ecommerce position in Latin America. It was Brazil’s most trafficked retail website in March, with over 216 million visits, followed by Amazon, Shopee, OLX, and Ali Express. All are marketplaces. Amazon.com in the U.S. received 3.15 billion visits in March.

In Q1 2024, about 16% of total retail sales in Brazil came from digital channels — apps, sites, email. That’s comparable to the U.S. for the same period. In China, ecommerce in Q1 was 23% of total retail sales.

International Sellers

A 2024 study commissioned by Alibaba showed that cross-border ecommerce represented a mere 0.5% of total retail sales in Brazil, likely due to the difficulty of doing business there.

Despite consumer demand for phones, brand-name clothing, and baby gear, among other goods, it’s expensive and difficult to get things into the country.

“Doing business in Brazil requires in-depth knowledge of the local environment, including the high direct and indirect costs of doing business,” according to the U.S. International Trade Administration. Regulators have for years attempted to enact reforms but continue to face complex tax schemes, restrictive labor laws, and vexing import barriers.

Those hurdles have collectively restricted access to international goods, prompting many Brazilians to shop abroad.

Last year Brazilian lawmakers created a tax exemption for online purchases of $50 or less from international sellers, but a pushback from domestic merchants may result in its revocation, replaced by a 20% fee. Purchases above $50 are already subject to a 60% tax.

Brazilian logistics are an ecommerce barrier, with inadequate infrastructure in the world’s fifth largest country, most of which is rainforest. There aren’t enough roads, maintenance is poor, and ports have limited capacity. Cargo theft is a problem.

That’s as inflation has expanded, reaching a five-year monthly peak of 12% in April 2022.

Payments

Despite the challenges, the country has excelled in modernizing payments. In 2020 the Brazilian Central Bank introduced Pix, a real-time payments system requiring only an email address, phone number, or local ID — no bank account.

By 2023 Pix represented 41% of all retail transactions — online and in-store — followed by credit cards at 15% and debit cards at 13%. Buy-now pay-later services are also popular.

Brazil is the largest economy in Latin America, representing 57% of ecommerce sales with projected growth of about 14% annually through 2026, according to Payments and Commerce Market Intelligence, a global research firm.

The growth was bolstered by the pandemic, forcing Brazilians who didn’t fully trust the web to go online anyway. But Brazil remains among the most unequal countries, with the bottom 40% of families earning less in 2021 than in 2016, per the World Bank. Fewer jobs, persistent inflation, and a drop in government support could limit ecommerce growth, at least for the medium term.

Charts: Ecommerce in Emerging Markets 2024

The global consumer class will expand by 109 million people in 2024. That’s according to “Beyond Borders 2024,” a report by Ebanx, the Brazil-based payments provider, addressing the digital economy in emerging markets.

The report highlights how digitization is transforming key industries and fostering economic growth, resulting in a more equitable landscape between emerging markets and developed economies.

Per the report, in 2024 India will contribute 34 million (31%) of the new consumers globally, surpassing the combined numbers from Europe, the Americas, and Africa, owing to the rise of ecommerce.

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For international corporations, rising markets present a significant avenue for digital growth. The data shows that while ecommerce is experiencing a 13% annual growth rate in developed nations (Europe and the U.S.), it’s advancing at 20% in rising markets (Southeast Asia, Africa, Latin America).

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A substantial portion of ecommerce in rising economies, particularly Latin America, is driven by international purchases. The data shows that cross-border transactions also play a significant role in the economies of Mexico, Chile, and South Africa.

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Moreover, according to the forecasts, by 2027 rising markets will account for roughly 40% of global B2B digital payments.

Charts: Ecommerce in Asia 2023

Statista projects the number of ecommerce buyers in Asia to grow by approximately 52% from 2023 to 2028, from roughly 1.33 billion to 2.03 billion. China alone has 884 million online shoppers in 2023; the U.S. has 254 million. Statista defines “ecommerce” as the sale of physical goods via a digital channel to end consumers (not businesses).

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Insider Intelligence forecasts the growth rate of retail ecommerce sales in Southeast Asia — Indonesia, Malaysia, Phillippines, Singapore, Thailand, Vietnam — to decline from 21.6% in 2022 to 13.5% in 2023, asserting “mounting global economic uncertainties.”

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SimilarWeb estimates Shopee to be the most trafficked online marketplace in Southeast Asia, with 407 million visits in August 2023, followed by Tokopedia with 138 million August visits and Lazada with 129 million.

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Lazada and Shopee are prominent in most Southeast Asian nations.