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.
