Does the emerging tariff-economy mean 'Boom Boom' or 'Brexit' for brands?

Tariffs have wider implications than economic behaviour: there are loaded political issues that have wider implications for the way brands navigate these challenges

Tariffs have long been a tool used by governments, typically with the intended aim of addressing trade imbalances and protecting domestic industries. In the U.S., currently the primary driver of tariffs globally, the previous Biden administration used tariffs as part of a 'Build Back Better' agenda, seeking to revitalise the U.S. industrial base but also to protect key technological sectors.

Of course, what we see today is markedly different in scale than anything imposed in recent history. The tariffs imposed by the U.S. on China this year were approximately 145%, with cumulative U.S. duties on some Chinese goods reaching 245%. China then placed retaliatory levies of 125% on U.S. goods, and although we have seen these come down significantly, they continue operating at historically high levels.

So how can commercial organisations with global supply chains manage in the turbulent environment of the 'tariff economy'? The Economist is reporting that some CEOs are considering they can learn lessons from COVID's impact. Initially, the effect on supply chains was severe, but it was not too long before systems adjusted and share prices returned to their previous levels.

We borrow the current 'Boom Boom' meme to describe this perspective, a term coined by trend forecaster Sean Monahan. He is best known for putting the term normcore on the map in 2013 and for predicting the vibe shift of 2022 but has recently announced the arrival of this new aesthetic, with the "boom" in Boom Boom refers to a "booming" economy, or at least the illusion of one.

But on the other side is the notion that there will be no swift return to business as there was during COVID when, by late summer 2020, share prices had recouped all their losses and then went on to increase significantly. Instead, The Economist reports that the likely impact of tariffs on the U.S. at least is more akin to that of Brexit on the UK economy, cutting productivity by 3%, business investment by 12-20% and GDP by 6-9%.

Whether we will have Boom Boom or Brexit is our question, which has a behavioural underpinning. We can certainly see that the turbulent environment created by these tariffs has led to consumers feeling markedly more 'Brexit' than 'Boom Boom' according to Ipsos research, where optimism score is now at a lower level than that recorded during the recessions of 1980, 2008, and the post-pandemic cost-of-living crisis in 2022.

So, it is with this backdrop that we are using a behavioural analysis to explore the implications for brands that have the unenviable task of navigating the turbulence created by tariffs. We consider the likely impacts on consumer shopping behaviours but also unpack how this episode could have wider consequences for the relationship between consumers and brands.

Crisis psychology

Political scientist Jonathan White writes that a sense of the future closing in - due to impending threats and a scarcity of time to prevent them - defines how we live in the age of emergency. He suggests this means life plays out against the backdrop of a "sense of finitude and threat".

The impact of this can be explained by 'Construal Level Theory' as, in a period of emergency, the immediate concerns are more salient and people are likely to focus on the 'here and now' rather than on abstract, long-term goals.

There could be a broad range of implications from this – for example, rather than simply reducing expenditure (which is also likely): for example, people may seek to gain some form of mastery and control by moving from premium branded products to private-label alternatives, seeking discounts & promotions, and squeezing more value from loyalty programs. We might then conclude that brands need to ensure their pricing, product and marketing communication strategies recognise these pressures to avoid the charge of being insensitive to the challenges consumers are facing.

We saw this play out during COVID when there was a widespread sense of the importance of empathy. There were also calls for this during the recent 'cost of living crisis', but in addition, some brands were accused of 'greedflation', increasing prices under the guise of inflation – although other reports challenge this.

Nonetheless, whichever way one reads this, it is likely that consumers have become sensitised to the complex influence of macro-forces on the prices of the goods in their shopping baskets.

Brand behaviour under scrutiny

Against this backdrop, the general advice for brands when facing uncertainty is to be clear and transparent, so on this basis, one might expect clarity in presenting the price increases due to tariffs. However, this could also be considered to have politically loaded meanings, and brands may, therefore, be concerned that this can alienate their customer base (or have challenging political consequences.) But on the other hand, increasing prices without any clear explanation risks appearing opportunistic.

And if brands show the proportion of the price derived from tariffs, then perhaps this inadvertently raises other questions: if we are asked to consider the cost implications of tariffs, then maybe some might want to know how much of the price can be attributed to the ESG policies or to executive bonuses. Given that consumers are increasingly used to 'drip pricing', where additional costs are added to the bill through the course of making a purchase (e.g. in areas such as travel) then, this makes the composition of the total price ever more salient and, therefore may well be much more publicly scrutinised.

And in today's highly horizontal social media-driven environment conversations about this are very hard to intervene in. There has already been a growing amount of activity on social media and digital communities, with screenshots of the checkout page of the online clothing company Triangl going viral for the "duties" surcharge. So understanding the viral implications of pricing communication (and how to engage with this) looks critical for brands – not least, as we have set out previously, prices tell people much more about the brand than simply how much it is charging.

The politics of tariffs

At the risk of making the situation ever more complex, tariffs do not impact all companies equally, given that large multinationals are in a much better position than smaller companies to restructure their supply chains, negotiate with governments, and divert their sales attention to new markets. In fact, they may even increase their market share by buying up distressed competitors, consolidating power, and further driving up prices. This financial flexibility and adaptability allow multinational companies to thrive in ways their smaller counterparts cannot.

Indeed, niche players may be highly exposed and have little room for manoeuvre. A recent Atlantic article highlighted the case of Chinese grocery stores - unlike retailers that just happen to sell Chinese-made clothes and gadgets, these stores are stocked with Chinese products because they are made in China. Of course, they can seek alternative suppliers but then risk altering the flavours that define their communities. Shoppers frequent these stores because they're the only places that carry ingredients now in many kitchens—chilli crisp, black vinegar, dumpling wrappers—or at least sell them cheaply.

These stores already run on thin margins and are particularly vulnerable - if people see these sorts of often much-loved businesses going out of business, we can expect to enter a period where consumers start to sense a degree of unfairness.

Economist Milton Friedman (who was not exactly progressive in many of his attitudes) wrote that "in a market society", the way that wealth is distributed "is unlikely to be tolerated unless it is also regarded as yielding distributive justice". In other words, we need a sense that the way in which money is shared across society (distributive justice) needs to feel fair to us.

However, given that we live in a world of significant disparity, we do not judge fairness purely due to equality of distribution; instead, we use 'procedural justice', or the fair process effect. We are willing to put up with inequality in outcomes if the processes that determine who gets what are fair. And given that there is much commentary on how a tariff is a very regressive tax that falls most heavily on the least affluent people in society, as the more of your income you spend on services (disproportionately the wealthy), the less you pay in tariffs.

This has enormous implications for brands as consumers are likely to assess changes in pricing not solely based on affordability but through broader judgements about fairness. This means that corporate behaviour will be under heightened scrutiny being interpreted through an ethical as well as an economic lens.

Brand risk in a polarised economy

While it may be tempting to consider consumer behaviour in response to tariffs to be purely related to buying behaviours, there can also be a much broader set of judgements that brands need to consider to respond to these challenges.

While there are, of course, some parallels between COVID and the cost-of-living crisis, these are typically seen to have non-political origins (public health emergency and global economic pressures leading to supply chain disruptions, respectively). The imposition of tariffs, on the other hand, is fundamentally political from the outset, which has significant implications for brands.

While economic protection may be the stated goal, tariffs are, in reality, tied to national identity, sovereignty, and international relations. As such, their symbolic weight is often greater than simple economic regulation, usually being framed as "patriotic efforts" to rebuild national strength.

This creates a much more complicated picture for brands. If people are rallying around the tariff goals of economic independence and national pride, then for some consumers, a sense that brands are failing to support this could result in a backlash. And, of course, the reverse can also be the case; brands that adhere to the spirit of the tariffs might alienate more liberal consumers who disagree with the imposition of tariffs.

And this gets even trickier when we consider the breadth of the political messages associated with tariff politics. For example, a recent Vox article suggests that incel communities are interpreting tariffs as part of a broader narrative that redistributes wealth and jobs from women back to men, reinforcing traditional gender roles. In this view, tariffs are a way to restore masculine dominance by bringing manufacturing jobs (traditionally seen as male-dominated) back to the U.S. and reducing the economic independence of women, who are perceived as benefiting from feminised office jobs.

This is a challenge for many brands that emphasise inclusivity and diversity, as nationalist economic policies could directly contradict the values they've spent years building. Exactly what happens here and the impact this could have on the overall economy is unclear. But one pathway that The Economist suggested (again not known for their febrile analysis):

"According to our analysis, America is splitting into two different economies and markets: one conservative, the other liberal. People on each side think about the economy differently, they buy different things and work in increasingly different industries. "

This has enormous impacts, for example, on consumer confidence. The Economist reports that before the presidential election, 50% of Democrats believed that the economy was getting better, compared to just 6% of Republicans. Today, 8% of Democrats and 49% of Republicans respond similarly. This translates into actual purchase behaviour, reporting that a paper by Verena Schoenmueller of Esade University and colleagues found that residents of each economy actively determine their purchase decisions based on the political leanings of the brand.

Drawing on the body of work related to identity by peole such as Dan Kahan might be central to understanding how the 'tariff economy' might develop. This helps us to understand how, what was previously seen as legitimate commercial activity, takes on a quite different interpretation in this environment. For example, as journalist Stephanie Bai points out that "pre-tariff" sales have been cropping up at a range of retailers in the U.S. The perception that prices are about to rise triggers a classic scarcity principle, with people more likely to act when they believe resources (in this case, lower prices) are limited or temporary. While some consumers will welcome this, others may interpret the action as opportunistic and at odds with the political sentiments of those supporting tariffs.

Conclusions

The current period is not only a moment of economic challenge but a broader behavioural inflexion point. One side of this is related to economic behaviour and how the public interprets brands' actions – are they seeking to raise prices unfairly? If smaller businesses are going out of business, might there be resentment aimed at larger brands that appear to be surviving and perhaps even thriving? Notions of fairness and trust may come to the fore, and an unsuspecting brand may find themselves needing to account for themselves in a way that was not anticipated.

On the other hand, is the populist sentiment related to the use of tariffs and the potential for creating intense political pressures for brands, creating a split economy? Commentators see this emerging in the U.S.; could this become a broader phenomenon? Whether this is a time akin to Boom Boom or Brexit increasingly depends on one's political position.

In any case, one thing is for sure – there are complexities for brands in responding to tariffs that go far beyond the economic. Understanding the behavioural dimension of the tariff economy will be key to navigating this and anticipating the direction it could move in.