Tariffs & Ecommerce: Updates & Strategies

DISCLAIMER: I’m not an economist, this blog contains my personal understanding of the situation from what I’ve read and from whom I’ve spoken to.

This week’s edition will focus solely on tariffs.

Q2 is off to an abhorrent start, fresh off the heels of a soft Q1 that already saw a (volatile) fall from grace from an industry record-setting Q4 (2024).

Well, Murphy’s Law seems to be in full effect: anything that COULD go wrong… seems to be going wrong. Q1 already saw consumers spending less & growing less confident, higher ad costs, inflation on ecommerce product prices, and volatile ad performance.

Enter the new US global trade policy that took a tenuous economy & consumer and made things even less certain with the tariffs rollout which shocked the world this past week.

At Avenue Z, we’ve been hard at work building solutions and testing frameworks to ensure our clients are getting ahead of the potential impact. I’ll break down below what tactics are top of mind for us.

When reviewing tariffs, the main question is: will they work as intended? There is absolutely nobody on earth that can confidently answer this.

This is precisely why the US stock market ($SPY ( ▲ 1.24% ) ) precipitously tanked ~20% from all-time highs that were just reached recently on Feb 19, 2025. Anytime there is uncertainty or instability in the economy, money managers run for the hills and start unwinding all the money they have in the market and store it in cash or money market funds. This creates panic and induces others, including retail traders, to follow suit.

This is not financial advice, but just have in mind that if you try timing the market and jump in and out, you’re much likelier to lose on the longterm horizon than if you just stayed in the market. This applies to the broad diversified S&P 500 (not individual stock names), refer to the image below:

Remove emotion (easier said than done) & just keep in mind that the American economy is resilient and grows over the long term, despite negative events that induce market drawdowns.

Now, back to tariffs and what you need to know.

I’m going to break down it all down below👇

1. Tariffs Imposed & their Ramifications

The 3 biggest implications that ecommerce brands need to be aware of:

1️⃣ De Minimis exemption eliminated on goods from China & Hong Kong

On April 2, 2025, an executive order was signed eliminating the de minimis exemption for sub-$800 imports from China and Hong Kong, effective May 2, 2025.

The De Minimis exemption loophole therefore still exists, if the orders are < $800 and manufactured from a different international country like Vietnam. This is a win for brands who were manufacturing in non-Chinese facilities and either shipped direct to the consumer from there or imported to a 3PL directly outside of the US, like Mexico. They would not be impacted at all in this scenario.

Example of this playing out for a brand who would be unaffected:

1. Manufactures product in Vietnam

2. Ships a large PO to a 3PL warehouse in Mexico

3. Fulfills individual orders from Mexico directly to U.S. customers

4. Each order is under $800

Brands that ARE impacted will have each <$800 shipment incur a 30% duty or $25/item fee (whichever is greater). This amount rises to $50/item after June 1, 2025.

😵 Ramifications:

2️⃣ Global tariffs

On April 2, 2025, Trump announced a comprehensive tariff that includes a universal baseline tariff PLUS a country-specific reciprocal tariff. The baseline tariff may be overshadowed by any pre-existing country tariffs that existed (like the 20% one on China).

Baseline tariff = 10%

Reciprocal tariff = Variable by country (view the whole list here)

Each country was given a unique reciprocal tariff based on the size of the trade deficit relative to the total amount imported from the country to the US and then divided by 2.

Reciprocal tariff (%) = { Deficit ($) / Import ($) } / 2

So, if the US imported $500M from Country X, but only exported $100M to Country X, the deficit would be $400M. Here’s the math: Tariff = {$400M/$500M} / 2 = 40%

Also, if there was no trade deficit, the country would still incur the baseline tariff of 10%.

In the end, the total tariff rates range from 10 - 60% among all global countries.

😵 Ramifications:

This hits every brand that relies on international sourcing.

3️⃣ Product-specific tariffs

Product-specific tariffs were also assessed and would stack on top of any other global tariffs. These include:​

1. Steel and Aluminum:

   Tariff Rate: 25%​

   Effective Date: March 12, 2025​

   Scope: Applies to all imports of steel and aluminum products.​

2. Automobile and Auto Parts:

   Tariff Rate: 25%

   Effective Date: April 3, 2025​

   Scope: Targets all imported automobiles and certain auto parts

These tariffs are NOT assessed if the materials are used for products with the following criteria:

• Energy Products and Critical Minerals: Items not readily available in the U.S. are exempt to ensure access to essential resources.​

• Pharmaceuticals, Semiconductors, and Lumber Articles: Currently excluded but may be subject to future tariffs (under ongoing investigations).

😵 Ramifications:

🚨 Total Combined Risk for eCom Brands:

2. What the Tariffs are Intended to Do

🇺🇸 "Level the Playing Field" for U.S. Producers

🏭 Rebuild U.S. Manufacturing

💼 Address the Trade Deficit

💣 Apply Pressure for Trade Concessions

🗳️ Nationalism & “America First”

📍End Goal:

Restructure the global trading system to favor American interests — through:

• Fairer trade terms

• Stronger domestic industries

• Reduced dependency on geopolitical rivals (esp. China)

• Economic independence and national security

3. What Brands Can Do to Minimize Impact

Supply Chain:

• Move supply origination out of China to retain De Minimis exemption

• Ensure non-China origin is properly documented

• Cut or modify SKUs that are no longer viable under tariff pressure

• Implement dual pricing models: one for domestic, one for international orders

• Negotiate with suppliers to split the financial impact of the tariffs

Marketing & Communication:

• Tackle the issue head on w/ customers & address it if you’re impacted. Communicate this clearly to customers if prices will increase noticeably.

• Pricing strategies you can test to offset the impact of tariffs:

  1. Add in tariff surcharge to each order

  2. Increase product prices

  3. Do nothing and reset KPIs to reflect stricter CAC/MER targets

  1. Pass it on to the consumer as a “tariff surcharge”

  • Some brands are keeping prices as is and just passing through the tariff surcharge to the customer at checkout as a form of additional tax. Here is how The Libertyville Coffee Company is communicating it transparently through a blog article on their site in case any customers wonder why tariff surcharges are being assessed. They even provided their calculation for how the % was determined. This gets ahead of any issues & is an example of a great comms/implementation plan. How did they arrive on 4.1% for every 10% assessed? Unclear. They likely split the fees w/ their suppliers so their exposure is far less than the 10% assessed.

    • Here’s an example of how The Libertyville Coffee Company is implementing the surcharge at checkout:

      

  2. Increase prices of products by the $ amount each product’s landed COGS just increased.

     Example:

     • If you had this scenario PRE-tariffs:

       • COGS: $10

       • MSRP: $40

       • Gross Margin: $30

     • If you manufacture in China and your COGS now increased 20%+34% (54%), here’s what your present day scenario would look like if you couldn’t negotiate with suppliers to share the financial burden:

       • COGS: $15.4

       • MSRP: $40

       • Gross Margin: $24.6

     • If you rolled this delta into your MSRP, here’s how your new scenario would look:

       • COGS: $15.4

       • MSRP: $45.4

       • Gross Margin: $30

     • The only downside here is this: will your consumers tolerate a price hike of 14%? From $40 to $45.4. Only one way to find out! To test it. If conversion rate is not impacted, you found your potential solution. Unfortunately it’s oftentimes not this simple.

  3. You can elect to keep prices as is and redefine your performance targets (CAC, MER, etc) to maintain your pre-tariff contribution margin

     • this is THE hardest to accomplish without sacrificing significant scale from paid media & something I’d recommend against

       Example:

       • If you had this scenario PRE-tariffs:

         • COGS: $10

         • MSRP: $40

         • Breakeven CAC: $30

       • If you manufacture in China and your COGS now increased 20%+34% (54%), here’s what your present day scenario would look like if you couldn’t negotiate with suppliers to share the financial burden:

         • COGS: $15.4

         • MSRP: $40

         • Breakeven CAC: $24.6

           Reducing your CAC by 22% without significantly cutting budgets is nearly impossible.

     • Another spinoff from this could be to try and increase AOV by the same proportion your COGS increased to try and maintain CAC with a higher AOV. Also challenging.

When testing pricing strategies, never make sweeping changes on your site, ALWAYS implement tests in a controlled environment where only 1 variable is changed. Be sure to review performance of your control and test group in different slices and always make sure you have apples to apples comparisons.

Analyze new vs returning site visitor performance, source/medium, and new vs existing customer performance in each test group.

4. What Brands Plan to Do

DTC Newsletter recently published a survey of 500 brands that reviewed the impact of tariffs, brand sentiment, and how they’re responding. I highly encourage you check it out. Here’s a snapshot from the survey that highlights what brands are actually planning to do in the wake of these tariffs rolling out:

According to Internet Research Unit, April has already seen the highest price change events in 2025 across ecommerce brands. Both days crossed 5M+ price changes. IRU monitors price volatility across online brands, among many other things. It’s a great index to track during these times to understand how the industry is reacting to macro events.

That’s all for now on tariffs.

This is a fluid situation. I will try to keep you updated as material updates roll out!

What I’m Listening to 🎧

Beats of the Week: SHIMZA (Factory Town Miami March 2025)

The world has been doom and gloom for the past few weeks. Inject some good vibes into your day with Shimza, who has been on fire. He was all over Miami a couple weeks ago for Miami Music Week. He’s one of the fastest rising & most consistent producers in the game right now. Authentic afro house with great vibes & energy.

Every week he puts out a new hour long mix on his Karma Karma Radio series. Keep the beats flowing with his Soundcloud station here.

I welcome all feedback. Good, bad, everything in between.

Hit reply, and let’s hear it! 👂

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