In a recent webcast, Dr. Bob Koopman, former Chief Economist at the U.S. International Trade Commission, provided a stark economic assessment of the current tariff environment for the retail and consumer packaged goods (CPG) industries. His analysis indicates that businesses and consumers should brace for sustained higher costs, increased uncertainty, and significant supply chain disruptions.
The Shift from Stable Rules to “Unpredictable” Policy
Dr. Koopman framed the current situation as a fundamental disruption to the post-World War II global trading system, which was built on predictable rules and declining trade costs. “What we’re seeing right now is a major disruption of the rules around global trade,” he stated, pointing to the significant spike in U.S. tariffs and, more critically, a parallel surge in economic policy uncertainty starting with the Trump administration and continuing today.
This uncertainty, he argued, is as damaging as the tariffs themselves, making long-term planning and investment for globally integrated businesses exceptionally difficult.
Who Really Pays the Tariff? The Data Is Clear
A central theme of the webcast was the economic incidence of tariffs. While theory suggests a large country like the U.S. could force foreign exporters to lower their prices and absorb some of the cost, Dr. Koopman presented data showing this is not happening in reality.
“The best estimates that we have suggest that 51% of the tariffs are being absorbed by businesses, and about 37% by households,” he explained. “Only 9% [is absorbed] by foreign exporters.”
This means the vast majority of the tariff cost is a direct hit to U.S. importers’ margins and, ultimately, consumer wallets, with estimates ranging from an additional $300 to $900 per household annually. He further noted that this burden is regressive, as lower-income households spend a larger share of their income on tariff-affected goods.
A Double Threat for Retail and CPG: Tariffs and “Fragmented” Efficiency Loss
For the retail and CPG sectors, the challenge is twofold. First, there is the direct cost of the tariffs on a wide range of imported products, from clothing and furniture to household goods.
Second, and potentially more damaging in the long run, is the loss of productive efficiency. Dr. Koopman explained that global supply chains have thrived on “economies of scale,” where large production runs lower costs for everyone. Tariffs fragment these supply chains, forcing production into smaller, less efficient units.
When asked which was the bigger threat—the direct tariff or the efficiency loss from fragmentation—Dr. Koopman indicated they are cumulative. “Not only do you get the fragmented production and the increase in average cost from the lower production volumes,” he said, “but you’re getting tariffs on top of that.”
The New Normal: Volatility and Adaptation
Looking ahead, Dr. Koopman was unequivocal in his advice to companies: treat tariffs as a volatile variable cost, not a stable tax. The current policy direction, with its reliance on broad authorities like Section 232 and the International Emergency Economic Powers Act (IEPA), suggests a future of unpredictable and potentially escalating trade barriers.
This new reality will force companies to engage in complex and often inefficient strategies, such as tariff engineering (e.g., slightly modifying a product to fit a lower-duty classification) or reconfiguring supply chains at great expense.
In conclusion, the webcast painted a challenging picture for the retail and CPG landscape. The combined pressures of direct tariff costs, inefficiently fragmented production, and profound policy uncertainty are creating a “sea anchor” on economic growth, demanding a fundamental shift in how businesses manage their global operations.
