The impact of tariffs on CX: A comprehensive analysis

President Trump’s recent move to apply tariffs to goods imported to the US from a number of major economies, has the potential to impact global trade and the prices consumers pay.

This article explores the impact of tariffs on customer experience, focusing on how changes in trade policy affect product pricing, availability, quality and overall consumer satisfaction.

It investigates the direct and indirect effects of tariffs on consumers, drawing from examples such as the US-China trade conflict, European Union tariffs, and their impact on industries including retail, automotive and electronics. The article concludes by offering strategies businesses can adopt to mitigate the negative effects of tariffs on customer loyalty and satisfaction.

What are tariffs?

Tariffs are taxes levied by governments on imported goods, primarily used to regulate international trade. While tariffs serve to protect domestic industries and address trade imbalances, they also have unintended consequences that can significantly affect customer experience.

CX encompasses all interactions a customer has with a brand or product, from initial awareness to post-purchase service. Tariff changes can affect product pricing, availability, quality and delivery times, which may lead to customer dissatisfaction.

The economic and customer-centric impacts of tariffs

1. Price increases and customer perception of value

When tariffs are imposed on imported goods, businesses often pass on the increased costs to consumers, leading to higher prices. Price increases can negatively affect customers’ perceptions of product value, especially in price-sensitive markets.

Empirical Insights: A report by the National Bureau of Economic Research in 2020 examined the impact of the US-China trade war on consumer prices. The study found that tariffs resulted in higher prices for US consumers, particularly in categories such as electronics and textiles. This led to a decrease in consumer welfare, as the higher costs were not compensated by increased domestic production.

2. Supply chain disruptions and product availability

Tariffs can disrupt global supply chains, resulting in delays, shortages and higher costs. As tariffs raise the cost of imported materials and components, businesses may struggle to maintain inventory levels, leading to stock-outs and longer wait times for customers.

The automotive sector in the US has been significantly affected by tariffs, especially on steel and aluminum. The imposition of tariffs on steel imports led to higher production costs for automakers, which in turn caused delays in car production and higher vehicle prices.

According to a report by the Peterson Institute for International Economics, US auto manufacturers faced higher costs and supply chain disruptions following the tariff hikes in 2018.

3. Quality deterioration due to cost-cutting measures

In response to higher costs from tariffs, some companies may cut costs by sourcing cheaper materials or outsourcing production. This can lead to a reduction in product quality, which negatively impacts customer satisfaction, particularly in industries like electronics and apparel where quality is a key factor.

Example: During the US-China trade war, some companies in the electronics industry shifted their production to countries with lower labor costs to mitigate the impact of tariffs. However, this cost-cutting sometimes led to lower-quality products, causing dissatisfaction among consumers who noticed a decline in quality.

4. The role of transparency in maintaining customer trust

Transparent communication about the impact of tariffs is essential for maintaining consumer trust. Companies that clearly explain the reasons behind price increases, delays, or quality changes due to tariffs are more likely to preserve customer loyalty.

Retailers like Walmart and Target made efforts to communicate tariff-related price increases to consumers. By informing customers about the reasons for price hikes, they helped mitigate dissatisfaction and fostered goodwill, despite the negative impacts of higher prices.

Strategic recommendations for businesses

To mitigate the adverse effects of tariffs on customer experience, businesses can adopt the following strategies:

Proactive communication: Companies should transparently communicate the effects of tariffs, such as price increases or delays, to their customers. This helps to maintain customer trust.

Supply chain diversification: By diversifying supply chains and reducing dependence on regions affected by tariffs, businesses can reduce the risk of supply chain disruptions.

Product innovation and added value: Offering customers additional value through enhanced features, customer service, or loyalty programs can help offset the negative effects of price increases.

Maintaining product quality: Despite cost pressures, businesses must prioritize maintaining product quality to avoid customer dissatisfaction.

Tariffs have a significant impact on customer experience, affecting product prices, availability, quality and delivery times. While tariffs aim to protect domestic industries, they can lead to higher prices and reduced satisfaction among consumers.

Businesses that adopt strategies such as transparent communication, supply chain diversification, and product innovation can minimize these adverse effects and preserve customer loyalty.