Layoffs? Price increases? US companies make hard choices as Trump’s tariffs set in

Mr Barry Barr has taken a number of cost-saving measures in recent months to keep his outdoor apparel company afloat during US President Donald Trump’s destabilising trade war.

He froze his spending on marketing and even prohibited his employees from travelling to see customers.

But while he waited for

Mr Trump’s tariffs

to come into better focus, he resisted making more consequential decisions at his company, Kavu True Outdoor Wear. He did not raise prices on its fall line-up. He continued manufacturing bags, woven shirts, polar fleeces and other items at factories in China, India and Vietnam, even though Mr Trump had signalled that those countries would face stiff duties.

“It’s a sit and wait, honestly,” he said in July. “We just don’t know.”

More recently, Mr Barr was trying to wrap his head around the punishing new tariffs that were set to click on shortly after midnight on Aug 7. It was hard for him to know whether the slate of duties on about 90 countries would ultimately hold, given the ever-evolving nature of Mr Trump’s trade policy.

On Aug 6,

Mr Trump signed an executive order that would double tariffs on India,

to 50 per cent, beginning in August in an effort to stop the country from buying Russian oil. He also threatened to impose a 100 per cent tariff on foreign semiconductors.

The latest tariff orders confirmed for Mr Barr that he would have to raise prices and lay off employees in the months ahead.

“There will be some tough decisions to be made for sure,” he said. “You have to put your big-kid pants on and do it.”

Mr Barr’s thinking is emblematic of the shift in strategy occurring at companies across the country.

For manufacturers, retailers and other businesses that rely on imported goods, Mr Trump’s tariff policy has become an exercise in forbearance. Since the spring, companies have had to contend with a series of delays, fresh threats and haphazard deals that have scrambled their ability to make long-term decisions.

“We kind of saw this summer as a holding period for a lot of firms,” said Ms Courtney Shupert, an economist at MacroPolicy Perspectives. “Firms were saying, ‘Let’s wait and see if demand is going to be stronger or weaker’.”

But now that many of Mr Trump’s tariffs have officially set in and his trade policy seems to be solidifying, many companies are concluding that they can no longer afford to hold back.

On recent earnings calls with investors, public companies including shopping conglomerate QVC Group, footwear brand Allbirds and eyewear vendor Warby Parker openly talked about their tactics to handle the escalating tariff costs, including increasing prices.

“I think we can, over the medium term, mitigate the impact of tariffs,” Mr Andrew Rees, chief executive of the footwear brand Crocs, said on Aug 7. He outlined plans to raise prices, reduce business expenses and wring savings out of the company’s supply chain, including by negotiating with factories.

How quickly businesses act could have wide-ranging implications for the economy. Should more companies decide to pass on price increases to consumers, that could push up inflation and chill consumer spending.

Many companies in recent months also hesitated to fire, or hire, workers amid the tariff unpredictability, reminiscent of the labor hoarding after the worst of the pandemic. If companies begin to have more confidence in the tariff rates, that moratorium could break. Indeed, the latest jobs report from the Labour Department, which was released Aug 1, suggested that businesses might be closer to that tipping point than previously thought.

In several interviews by phone and text message in recent days, Mr Barr, who started Kavu in 1993, recounted how his business had contended with mounting pressure because of Mr Trump’s tariff policy.

Mr Barr has long paid some levies on products. But the extra tariffs that Mr Trump revealed in April, which included since-modified duties of 46 per cent on Vietnam and 26 per cent on India, were much more onerous.

At first, Mr Barr chose to swallow Mr Trump’s baseline 10 per cent tariff, as well as tariffs against China that had already kicked in.

But as the trade war dragged on, he started to consider other solutions.

“There’s absolutely no way I can make a profit this year absorbing all these tariffs,” Mr Barr said. “It’s bigger than any tax bill I’ve had to pay.”

His foreign suppliers lowered their prices slightly to account for the cost of the tariffs, which helped somewhat.

Mr Barr weighed manufacturing some items in a factory his company works with in Seattle but decided against it, in part because it would be too expensive and impractical to import the sewing machines he would need.

He was also concerned that the tariffs would make buying fabric and other raw materials from abroad too costly. He is looking into whether he could move some production to factories in Central America, but is not yet sure it will be possible.

As the tariff landscape began to take firmer shape, however, Mr Barr started to enact deeper changes.

He chose not to raise prices on items in Kavu’s fall line-up, even though the items were subject to some tariffs when they arrived in the US this summer.

But the persistently high tariff rates compelled him to increase prices for 2026. Kavu products are sold in about 2,000 US retail locations. The company also exports its goods to 26 countries.

Working off the assumption that tariffs for Vietnam and India would settle around 10 per cent, and China around 37.5 per cent, Barr increased retail prices for his company’s summer 2026 line by about 15 per cent to 30 per cent – the most he believed customers would pay.

Under the new pricing, the retail cost of a pullover made in China would rise to US$120 (S$154) from US$90. A button-down shirt produced in India that used to retail for US$80 would be US$105.

But with the tariff rates settling higher, Mr Barr is now worried he will have to raise prices even more. The US’ trade deal with Vietnam, for instance, stipulates a 20 per cent tariff on goods from the country, and India is facing 50 per cent tariffs.

At the same time, Kavu’s preseason sales for next summer came in 15 per cent lower compared with sales for this summer season.

With his profit margin shrinking and business expenses already shaved to the bone, Mr Barr said he would probably have to lay off some of his 28 employees in the next three to four months.

“You’ve got to save money somewhere so the company can move ahead,” he said.

Frustrated, Mr Barr has been speaking to members of Congress about the effect of Mr Trump’s trade policy on small businesses like his.

“What we need to thrive is stability and not chaos,” Mr Barr said during a virtual news conference with Democrat Senator Patty Murray of Washington.

And while he still fears that the tariffs will severely hurt Kavu, he hopes his company can pull through with the right adjustments.

“We can fight hard to survive,” Mr Barr said. “That’s all we can do.” NYTIMES