Reuters Events | Supply Chain & Logistics Business Intelligence

Despite a provisional deal between the two countries, tariffs remain exceptionally high and now freight rates are soaring too, increasing pricing pressures on U.S. retailers such as Walmart, Target, and Home Depot

China and the U.S. may have affirmed a trade deal, cutting rates from the high point of 145% briefly emplaced in April 2025, but importers are still staring down massively increased 55% tariff rates across most product categories.

Major U.S. retailers such as Walmart, Target, and Home Depot now have to contend with these newly announced rates, alongside rapidly rising freight rates particularly on routes from Northeast Asia to the U.S., which will cause some tough questions over pricing and inventory strategies, decisions that now seem certain to bleed into wider U.S. inflation.

A new framework, but still exceptionally high rates

Under a newly announced framework for China-U.S. trade, the broad details of which were announced June 12, the U.S. will move to levy 55% tariffs on Chinese goods entering the country.

These consist of 10% reciprocal tariffs that apply to all countries (currently paused until August 10), a 20% tariff levied due to Trump administration concerns over fentanyl production and, on top of these, are Section 301 tariffs across a broad range of goods, including pharmaceuticals, beverages, textiles, machinery, vehicles and aircraft. This means that all imports from China will be subject to substantial levies.

The new rates announced in June are an increase from the 30% tariffs agreed during a 90-day rollback agreed just in May 2025, and represent a massive jump from the effective tariff rate on Chinese trade into the U.S. of 21.1% under the Biden administration to over 50% with this new framework.

As a result of this deal, and others announced that effect wider U.S. trade, the U.S. consumer will face the highest effective tariff rates since the 1930s for overall U.S. trade with the world.

Frothy freight rates add to complex cost picture

Concurrently, freight rates are now skyrocketing as importers seek to get goods in before higher rates kick in.

The Freightos Baltic Index (FBX) for the Northeast Asia to the U.S. West Coast route has skyrocketed, jumping 98% in a week to $5,488 per forty-foot equivalent unit (FEU) as of June 6, and up 129% month-on-month, while the corridor from Northeast Asia to the U.S. East Coast trade route stood at USD6,410, up 61% compared to a week ago.

Similarly, Drewry’s World Container Index for June 5 noted spot prices on the Shanghai-to-Los Angeles route had increased 117% month-on-month per FEU and 96% to New York.

Simultaneously, trans-Pacific cargo space is quickly running out, as businesses rush to bring inventories to the US before the tariff pause deadline in mid-August. This has put added pressure on retailers like Walmart and Target, as contract prices they had worked out with container liners and freight forwarders will have to be renegotiated to reflect changing conditions.

Walmart's executives have routinely cautioned about the impact of tariffs, and price increases have already impacted some of Walmart's top items with some now costing 54 cents a pound instead of the pre-tariff price of 50 cents per pound.

It is the single largest importer of container goods into the U.S. and is therefore one of the most exposed to the kind of changes now rippling their way through trade and shipping. Walmart signalled to market that price increases will now be occurring across its product range through a statement in May. 

The company’s operating margin in the first quarter of 2025 stood at 4.31% and its net profit margin was 2.85%, leaving it little wiggle room to manoeuvre around such substantial changes.

Home Depot and Target look to keep prices intact

While Walmart has shown conviction in raising prices, other retailers like Home Depot and Target are looking to address tariffs head-on and spare their consumers from tariff-induced price rises.

Home Depot, a big-box retailer that concentrates its inventory in specific areas, has been diversifying sourcing away from China, helping it weather the storm better than a general retailer like Walmart. By keeping prices steady across most of its products, Home Depot expects to gain market share from its competitors, who are raising prices. 

Target, which has sold higher-margin products such as clothing and home furnishings, has said that it intends to keep prices unchanged. This is in spite of falling operating margins that dipped from over 6% in the second quarter of 2024 to 3.7% in the first quarter of 2025.

With consumers expected to cut non-essential spending due to increasing tariff-related pricing, Target's total sales are anticipated to fall.

Inflation pressure

Due to this kind of high pressure on retailers, as well as small margins and a high presence of Chinese manufactured goods, the question is now how long can major retailers hold out on substantial price increases and what effect will this have on inflation and consequently the U.S. consumer?

U.S. Consumer Price Index (CPI) increases for May came in under expectations, rising just 0.1%, which put the annual inflation rate at 2.4% and followed on from a muted increase in April.

That relatively low rate suggests most retailers are continuing to eat their way through existing stockpiles of inventory and are cautiously introducing price increases where required.

Therefore, inflationary effects are more likely to become apparent into the second half of the year, which could cause American consumers to further cut back on non-essential purchases.

Already, U.S. consumers are showing signs of prioritising saving over spending in the first few months of 2025.

This therefore could be a tricky period to negotiate for retailers both big and small across the U.S.