Expected Pricing Impacts in 2025

6 minute read

Expected Pricing Impacts in 2025

With election results confirmed this morning, we can better prepare our businesses for Q1. With the Republican party’s confirmed control of the Presidency and Congress in 2025, the U.S. pricing landscape is anticipated to change significantly. 

With Republicans now dominating all three branches, policy changes in trade, taxes, energy, and immigration are likely to occur quickly. Broad tariffs, tax cuts, deregulation, and tightened immigration will impact several industries, increasing and decreasing prices simultaneously dependent on the sector. 

Anticipated policy changes and their overall impacts:

  • The administration has voiced an intent to implement a 10% tariff on all U.S. imports and a 60% tariff specifically on Chinese goods. Such tariffs will likely increase consumer prices, as import costs are typically passed on to consumers.

  • The administration has also promised to continue the 2017 Tax Cuts and Jobs Act (TCJA), ensuring continued low tax rates for individuals and corporations. While this may increase disposable income and stimulate economic growth through consumer spending, it will increase the national debt.

  • With the intent to increase domestic energy production, including expanding oil drilling and fracking activities, there is a commitment to "cut energy prices in half within 12 months" of taking office. While this may lead to lower oil and gas prices, benefiting consumers, it will negatively impact profit margins within the energy sector.

  • The commitment to stricter immigration enforcement, including mass deportations of undocumented immigrants, aims to curb labor market competition and stabilize housing prices. However, this move could disrupt industries heavily reliant on immigrant labor, such as agriculture, construction, and hospitality, ultimately driving up costs.


Predicted industry-specific impacts:
These policy changes will significantly impact several industries.  Consider the following:

   Manufacturing (prices will increase)

  • New tariffs on imported goods, particularly the 10% across-the-board tariff and 60% on Chinese imports, will increase costs for manufacturers reliant on foreign components or raw materials. This will likely lead to higher consumer electronics, automotive components, and machinery prices, where imported parts are a key input. U.S.-based manufacturers producing consumer goods might pass these increased costs to retailers and, eventually, to consumers.

  • Domestic manufacturers of products previously facing stiff foreign competition (such as steel and aluminum) will see an increase in pricing power as their products become more competitively priced relative to imported alternatives. This could improve profitability in certain manufacturing subsectors but may reduce employment in companies unable to offset the higher input costs of imported goods.

  • The tariffs may prompt a gradual shift toward localized or nearshore supply chains, particularly in sectors like automotive and electronics. However, this transition would likely increase short-term costs, impacting the final pricing of goods.


  • Retail (prices will increase)

  • Retailers, particularly in consumer electronics, apparel, and household goods, will face higher prices due to increased import costs. While the big box and large retail chains may be able to negotiate or absorb some of these costs partially, smaller retailers will likely have to pass them on to consumers, increasing the price of goods on shelves or forcing trade-down decisions on brand preferences.

  • Consumers might begin to prioritize essential goods, leading to a downturn in the sales of non-essential items, which is especially concerning for specialty retail sectors like apparel, luxury goods, and electronics.

  • In anticipation of price increases, some retail sectors might engage in short-term stockpiling of foreign goods. However, inventory costs associated with this strategy could lead to further price increases and potential disruptions.


   Energy (prices will decrease in nonrenewable and increase in renewable)

  • With an emphasis on expanding domestic production through increased drilling, fracking, and pipeline development, the new policy aims to reduce reliance on foreign oil, theoretically driving down domestic energy costs. Lower oil prices will benefit consumers and industries dependent on energy, such as logistics, aviation, and manufacturing.

  • Traditional energy sectors (like oil and gas) will benefit from deregulation, but this may hinder the growth of the renewable energy industry, as the administration prioritizes fossil fuels. Renewable energy providers might face difficulties due to competition with regulatory constraints, potentially leading to higher solar and wind-based energy costs.


   Agriculture (prices will increase)

  • The proposed immigration crackdowns could create significant labor shortages in agriculture, especially crop harvesting and processing, where immigrant labor is integral.

  • The tariffs on Chinese imports have led to retaliatory tariffs on U.S. exports, affecting American agricultural products such as soybeans, corn, and dairy. Reduced foreign demand may force domestic producers to seek alternative markets or reduce production, potentially increasing costs and prices within the domestic market.

  • Tariffs on imported fertilizers and agricultural equipment could raise the cost of farming inputs. These increased production costs will likely contribute to higher consumer prices for essential agricultural products, particularly those relying heavily on mechanization.

   Automotive (prices will increase)

  • The automotive industry, which relies on international supply chains for components like microchips, electronics, and steel, is expected to face cost increases due to tariffs. These higher input costs may drive up the prices of vehicles manufactured in the U.S., especially in the near term as supply chains adjust.

  • Automakers may gradually shift production of key components back to the U.S. or North America to reduce tariff exposure. While this could lower the dependency on overseas suppliers, the transition could be costly, impacting vehicle pricing in the short-to-medium term.

  • Policies favoring traditional energy over renewables may reduce federal support for electric vehicles, making them comparatively more expensive. Additionally, supply chain shifts for EV battery components could drive up costs, potentially slowing down EV adoption and impacting consumer pricing.


  Construction (prices will increase)

  • The proposed stricter immigration policies could exacerbate labor shortages in construction, where immigrant workers make up a significant part of the workforce. Higher labor costs may increase prices for residential and commercial projects.

  • Reduced energy costs may benefit construction companies, particularly those operating in heavy construction or industries dependent on high energy use, such as cement and steel production. This could slightly mitigate other cost increases.

  • If labor shortages drive up construction costs, housing prices will likely rise, especially in markets already facing tight housing supply. However, stricter lending regulations or higher interest rates could offset demand, creating a complex pricing environment.


   Healthcare (prices will increase and decrease)

  • Many medical devices and pharmaceuticals rely on imported components or manufacturing processes. Tariffs on these goods could increase production costs, which may be passed on to healthcare providers and, ultimately, consumers, driving up the cost of medical treatments.

  • Restrictive immigration policies may affect the healthcare workforce, particularly in sectors like nursing, where immigrants play a significant role. Labor shortages could increase hiring costs, especially in rural or underserved areas, leading to higher prices for healthcare.

  • It is possible that the administration may pursue reforms aimed at reducing prescription drug prices, potentially placing pressure on pharmaceutical companies to lower prices.

 
Strategies and Tactics to Implement in Q4 2024:
With so many moving parts and pressures on the horizon, companies can take several immediate actions to prepare for and even take advantage of the impending policy changes.

  • Improve dynamic pricing capabilities: It’s a great time to revamp your pricing process and create a platform for dynamic adjustments.  Many companies improved their capabilities after the 2018 tariff run and subsequent rapid inflation of 2021, but many still fall short of promptly keeping up with cost pressures.  Establishing a pricing process that can adapt to fluctuations in input costs will allow companies to adjust prices as needed. Dynamic pricing models, enabled by data analytics, can help manage costs in response to new tariffs.

  • Optimize inventory: Companies should conduct inventory audits and focus on high-demand products likely to be affected by import tariffs. Locking in bulk purchasing agreements or stockpiling goods with stable shelf lives could help mitigate cost increases and allow for more predictable pricing.

  • Create off-brand versions: Private label products can offer both B2B and B2C companies more pricing flexibility, creating choices for customers that would otherwise leave due to higher prices.

  • Consider increased price transparency: While this requires a strong value proposition and the ability to defend it, it also provides a very effective method to encourage competitors to follow pricing actions, keeping industries whole despite cost pressures.  Communicating price adjustments clearly and justifying them (e.g., due to tariffs) can help maintain customer trust and prevent sales erosion.

  • Lock-in fuel contracts: Companies with significant energy needs, such as those in transportation or manufacturing, should consider securing fixed-price contracts with energy suppliers early in 2025 to hedge against price volatility.

  • Negotiate forward contracts where possible: To protect against fluctuations in input costs, agricultural companies may benefit from forward contracts for essential supplies like fertilizers, seeds, and equipment.

  • Shift energy to domestic markets: With the risk of retaliatory tariffs looming, several sectors, including agricultural companies, may need to pivot to domestic markets if international demand weakens due to trade barriers. Developing local distribution networks and pricing strategies to appeal to U.S. consumers can help offset reduced export volumes.

  • Emphasize Aftermarket and Maintenance Services: Higher prices on high-ticket items and capital expenses may drive more customers to retain products longer, increasing demand for maintenance. Manufacturers should strengthen their aftermarket parts and services offerings, which can become profitable buffers to offset production cost increases.

  • Enhance Pricing Analytics and Forecasting: Advanced pricing analytics, powered by market conditions and input costs data, will be crucial. Companies can invest in predictive analytics tools that enable data-driven decision-making and facilitate rapid adjustments in pricing to respond to cost fluctuations.

By taking proactive steps in these areas, companies can better manage the anticipated cost pressures and ensure they are strategically positioned to adjust pricing as required for January 2025. These preparatory measures aim to provide resilience in pricing structures, protecting profitability amid potential volatility.

For a free consultation on how best to prepare your company for next year’s pricing, call 330-414-6768 or email info@pricingempowered.com.

 

References

  • Tax Foundation. "Trump Tariffs & Biden Tariffs: Economic Impact of the Trade War."
  • Committee for a Responsible Federal Budget. "The Fiscal Impact of the Harris and Trump Campaign Plans."
  • FactCheck.org. "The Issues: Trump's Proposal to Lower Prices by Increasing Energy Production."
  • Federal Reserve Board. "Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector."
  • National Retail Federation. "Trump’s Tariff Proposals Could Reduce American Consumers’ Spending Power."
  • Business Insider. "How a Trump or Harris presidency could impact your investments."
  • Time. "What a Trump Win Would Mean for the Economy."
  • ChatGPT version 4 November 6, 2024

FILL OUT THIS FORM TO GAIN ACCESS TO ALL OF OUR FREE RESOURCES