An emergency tariffs episode

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1:03Hello, and welcome to the Modern Retail Podcast, our show that covers the ways the retail industry is changing and modernizing. I'm Special Projects Editor, Melissa Daniels. Today, I'm joined by Senior Reporter, Gabby Barco, and Executive Editor, Anna Hensel. How's it going today, guys? Good. It's an interesting day today, which we'll get into. Oh, it sure is. Happy Friday. Yeah. Well, we all love a Friday news dump, so we're convening for this emergency edition of the Modern Retail Pod. If you didn't know, the U.S. Supreme Court said the Trump administration exceeded its authority under the International Emergency Economic Powers Act in a 6-3 decision that dropped on Friday morning, also known as IEPA, the law grants president's broad powers during national emergencies, but it didn't explicitly authorize the unilateral imposition of global tariffs, which is how it was used here.

1:57And as we've been talking about on this podcast since last year, tariffs have been a central issue in retail and e-commerce and business operations over the last year. So huge news in our world. Just to kick things off, I'm wondering if you guys can share how the news hit your desk this morning. How did you find out about this decision and what was your immediate reactions? Yeah, I'll go first. So we kind of had been waiting for a while on a tariffs decision to drop. We basically knew that Supreme Court opinions were coming on February 20th, 24th, and 25th. So reasonably, we assumed that one of those opinions would be related to tariffs.

2:43Unfortunately for me, I scheduled an eye exam this morning, So I found out as I was checking Slack and running out the door, you know, there were also weeks in January where we were expecting a decision and it didn't come. And so I was like, okay, it's coming soon, but didn't think today was the day. So that is how I found out. Yeah, there was somewhat of a false alarm a few weeks ago, actually, that I remember we were waiting for sometime in January. That did not come. But yeah, we did know that there was some opinion dropping today. And then we got some alerts and our colleague, Alison Smith, ended up writing it up in record speed.

3:31And that was the first coverage I really read of it. So it was an exciting morning. Yeah. And so when we when we think about the meat of this decision, right, Trump was not authorized to institute these kind of tariffs under IEPA. I feel like folks had sort of forecasted that they thought this decision was going to come down this way. You know, when you heard that the tariffs were overturned in this instance, did that shock you or did you feel like that squared with what you had thought was going to happen based on your conversations around this? It didn't shock me. And my knowledge was just based on, you know, I don't really cover a lot of legal decisions as a business reporter, but this was just based on the insights I saw from, say, Supreme Court reporters that I follow on social media.

4:24Basically, during the hearings, it seemed like there was a lot of skepticism expressed by a lot of the judges, so they expected this to be overturned. So no, wasn't surprised at all. I think just a bit frustrated, as a lot of business owners are, that it took this long to decide. I wasn't necessarily surprised. I feel like we've been kind of seeing the writing on the wall for a little while. And then a couple nights ago, I did see that the betting markets were going in this direction. So, you know, I don't know what that says about policymaking, but here we are. But then I think a lot of people were waiting for the actual opinion, and it looks like Justice Roberts was the one that led it.

5:06So if I don't know, do you want to get into the language here? And of course, I'm no expert on, you know, Supreme Court policies whatsoever. But, you know, for the purpose of today, we can dive in. Yeah, I'll share the quote that Alison Smith included in her story on modernretail.co this morning, and that's what Chief Justice John Roberts wrote, quote, quote, the president asserts the extraordinary power to unilaterally impose tariffs of unlimited amount, duration, and scope. We hold that IEPA does not authorize the president to impose tariffs. So what this is basically saying is that the law the president used to enact these tariffs doesn't give him the power to do that.

5:51And if the president does want to take these tariffs further, it will require, you know, an act of Congress that this is the sort of, what do they call it, the quote unquote major powers rule where if there's going to be a very specific action that the president has to take, Congress has to give them approval to do that. Yeah. And so what I will say is this morning I've been texting just some business owners to get their quick reaction to the news. And a couple people I talked to who were really heavily impacted by tariffs last year said that, you know, they're feeling good that this was overturned, but they feel like now Trump is going to try to push these tariffs through Congress.

6:41And so they're not super optimistic that things will change, actually. Yeah, any other reactions that you're hearing, either from brands or folks in this space? Yeah, I think people who I've seen some celebrations on social media from people who are basically like, this will be great for e-commerce. And specifically what they're zeroing in on is they're like, oh, now all these companies are going to get refunds. And that is not a given. I just want to make clear. Um, we don't know if there will be refunds. Um, so I would say it's not kind of, I think a lot of people are excited, but what I think will be interesting to see play out related to this is, again, what happens with refunds and also what consumers are expecting out of businesses.

7:38Because if you just think about something we heard a lot when tariffs were issued and some brands had to raise prices is some consumers, frankly, were confused. They were like, why are you raising prices? I thought the country that it was imported from pays the tariffs, which just speaks to how a lot of consumers don't understand tariffs. You know, just a lot of average people are not well-versed in importing, exporting laws, nor should they be. And so I think maybe what you'll see is you'll see a lot of customers being like, why aren't companies lowering prices? So it'll be interesting to see how companies manage those expectations.

8:23Yeah, I think on the issue of refunds, it's pretty interesting because to me, I feel like the reactions have been like, okay, maybe a little bit of a sigh of relief. Like this is better than what maybe we've been dealing with the last few months. I mean, it's just like some companies literally upended their entire supply chain. So like maybe this will be a little bit of a reprieve. But I was talking to somebody earlier and they said, you know, I don't think we're going to be like building or planning our entire year around a potential tariff refund. Like that's just not realistic. So kind of like operate as if you would normally, quote unquote.

9:03But, you know, of course, if refunds come, that'll be great. But to me, I'm like, that's going to be even more complicated. No, because I can't imagine the paperwork involved in that. That's if we even get them. Yeah. And so one point on the refunds, I was texting with Michael Weider, who is the co-founder and CMO of Lalo, which is a baby products company. And they were actually quoted in Reuters right after this decision was issued saying that they were going to try to seek a$2 million refund. So I texted him and I asked him just, how exactly are you planning to do that? And he said, we have been working very closely with lawyers and customs brokers to make sure all of our ducks are in a row.

9:52We are waiting to see if and when refunds may be possible. And we're ready to hit go when slash if there's an opportunity. And I think if you are a brand who's trying to get refunds, right now, you know, I'm not a lawyer. I don't know exactly how the process works. But, of course, one thing you have to do is kind of have all of your paperwork and, like, documents in order and, I think, of course, prove that you paid these tariffs. So I imagine right now a lot of companies are just, like, if they haven't already been trying to get their paperwork together, talking to lawyers to see what is or isn't possible.

10:28Yeah, I think that's a really good example of something that a lot of brands have been doing. I mean, I can think back to conversations I had in November and December with attorneys in the international trade space who were working on that with companies. And there's all kinds of intricacies based on whether the tariff has been liquidated or not. So based on what part of that process you're in would determine potentially how you get the refund. I have heard that there is the potential for this to be an electronic process through CPB. I know some associations in the retail world are hoping that it will be pretty efficient, given the records that they have had for now.

11:11But if you're a company who has all those ducks in a row, it's going to be a lot easier to prove what you've paid and you won't have to go searching for it now. But to be clear, just the timing here, it's just so fuzzy still, sitting here just a few hours after this decision dropped, right? We don't know how or where a refund process will take place within the administration. We don't know if they'll abide by that. The court didn't say explicitly they have to. In fact, I believe it was Justice Kavanaugh's dissent that said, hey, we're actually not weighing in on this. But the potential is really impactful.

11:51I've seen estimates from anywhere$130 billion to$175 billion that could be on the table in tariff refunds if that process gets opened up. Another thing I'm thinking about, because, again, I think there's a lot of people out there who are a bit cynical, myself included, who are like, well, now these tariffs just might be pushed through Congress. But I think the bright side of all of this is if you just think back to last January, February, there was so much chaos last year around tariffs. It was basically like President Trump would issue some executive order or post on social media that tariffs on imports from this country were going up by an astronomical amount in a week.

12:35And that is just not a deadline a business can operate under. It takes months, maybe a year to change manufacturing or switch it to a different country. And so I think the bright spot of all of this is that there hopefully won't be these big whiplash changes in tariff policy that will happen in a matter of weeks. Anything has to go through Congress, which again takes a while to pass. Yeah, I think that's a good perspective here. You know that there is some clarity as far as what moving forward any new tariffs might look like. That said, everything we know about this administration tells us to expect the unexpected, right?

13:19So we'll see what's to come. From the business side, though, I'm wondering if there's any next steps that we know businesses are taking, you know, beyond this process of potential refunds that they might be prepping for. What are you all hearing on how retailers are thinking about their imports and inventory right now? Because, you know, sitting here in February, a lot of brands are already planning for holiday, right? And so I'm wondering how, like, okay, well, there may not be tariffs anymore. Like, is that going to factor in to how I'm ordering and planning ahead right now? Yeah, so I will say I talked to some companies in beginning or mid-January just about how 2026 planning was going.

14:03And basically, like, if tariffs are overturned, will that change anything for you? And the answer was not really, because, again, it takes a while to change manufacturing. So some companies had, over the course of the past year, perhaps started lessening their reliance on foreign manufacturing, maybe finding like one new product line or component that you could manufacture in the U.S. But all of those changes take a while to implement. So I haven't really heard of anyone planning on, you know, who had been planning on making these huge changes if tariffs got overturned. In regards to holiday planning, I think a lot of it will come down more to consumer sentiment.

14:48And so we'll just see how that kind of tracks in the beginning of the year. Yeah, I think probably similar to refunds. And of course, you know, it's only been a few hours. I'm sure we'll know more in the next week or so. But yeah, I imagine a lot of brands are just going to kind of wait and see what happens as they're placing some orders. But yeah, I can't imagine anybody kind of just, you know, walking back their entire strategy from last year, similarly to what I was saying earlier. Yeah, this is not a brand per se, but I was talking this morning with somebody that works more on the packaging side.

15:29And, you know, they got a lot of interest over the past year from a lot of brands that would normally source packaging from Asia, particularly China, who switched over to this domestic operation. And they aren't doing anything yet, but they kind of are expecting that demand to taper off where maybe some people that were paying the premium to, you know, manufacture all of their cardboard packaging here are maybe going to like, I don't know, either go halfway or maybe pick different products or even go back to China if it makes more sense. So I guess that kind of got me thinking like this whole idea that everybody's going to manufacture in the U.S., which was always kind of a pie in the sky goal for a lot of brands.

16:21Do you guys kind of see that maybe, I don't know, not going away all the way, but I just can imagine people being like, well, OK, now that we don't have to, why would you continue to try? Oh, it's such an interesting take. I'm really glad you brought that up because I feel like I have talked to some companies that quite successfully figured out how to nearshore or find manufacturers outside of countries that were hit by super high tariffs and are quite happy, you know, with the results. and in some cases have even managed to do things like, you know, able to speed up shipping orders, say, because things aren't necessarily being air freighted or shipped, you know, across the Pacific Ocean anymore.

17:07But, you know, if something suddenly is going to be cheaper in a few months or in a few quarters to come, maybe then you rethink the math there. As far as the manufacturing, though, yeah, to me this is like, I can almost look back on the last year and see it as being kind of like collateral damage, you know, where maybe the goal was to boost U.S. manufacturing. But in essence, we still lost about 100 ,000 manufacturing jobs last year, according to federal estimates. So, you know, the results that some of this was poised to bring never really materialized. Yeah, I will say, just anecdotally speaking to the brands I talked to, I feel like I heard a lot of, you know, we can produce maybe this one product in the U.S., but we can't produce our whole assortment.

18:02Again, using the example of Lalo, which sells baby products, they're planning on releasing some paper products later this year that will be like their first product that they've manufactured in the U.S. But their hero product is a high chair. They sell a lot of baby and toddler products. Those, you know, it takes a lot of knowledge to manufacture those. You can't just, there's a lot of safety regulations involved. involved. So I don't even know if there are manufacturers who manufacture that in the U.S., but it's definitely not possible for every brand, which I, again, I think like if tariffs had served the purpose that I think this administration wanted them to serve, we would have seen all these brands rush to manufacture more products in the U.S., and we just didn't see that last year.

18:53So knowing what we know about the decision and how folks are responding so far, I'm curious what topics or lanes you all will be focusing on in your reporting in the weeks to come. Like, what's your one burning question that you'll be asking people as you continue to report in this area? Yeah, I think that what I am most interested in, which I kind of nodded at a little bit earlier in the conversation, but just what will be the average person reaction to this and how will brands manage that? I am very curious to see if consumers expect companies to drop prices. And I almost think sometimes we behave in response to how we think conditions will be, not necessarily what they are in the current moment.

19:48So I almost wonder if we're going to see a little bit of like a placebo effect. Like people think the economy will get better because tariffs are now gone. And so maybe they'll spend more and behave a little more opportunistically. Yeah, that's a really interesting prediction. We'll have to track that in the months to come and see what happens. But yeah, I could see people thinking that prices are going to get lower or, oh, I feel better about the economy now and that factoring into their decisions. Yeah, I think for me on the brand side, similar to what we were just mentioning, which is, you know, if it's going to really impact margins, for example, or I mean, there's the refund question, of course, we're all waiting for.

20:34But definitely, you know, manufacturing, right? That question of did all that diversification pay off as a long-term play or was that a Band-Aid? And whether, I imagine it's going to be somewhere in the middle. I don't think it's going to go all the way back. But yeah, I do see maybe more experimenting with diversifying the supply chain because similar to sort of what happened with COVID where people are like, you know, it's not like that is out of the question, like some big event like that happening again. And so you always have to kind of plan for that long term and have just a lot of levers to pull in case you do need to.

21:13So I guess in a way it was a weirdly good test maybe for some companies to see if they can get out of their comfort zone in planning. Yeah, I think that's a really good observation. I'm trying to look at the bright side. Yeah, no, everything's a learning experience, right? And, you know, some folks I've talked to about this have pointed out how tariffs, kind of like the COVID-19 pandemic before it, are yet another supply chain interruption. And this won't be the last, right, thing that affects supply chains. And with the administration that we have here in the U.S. right now, we're just seeing global trade and the global economy kind of being used as a political tool, right, to move things one way or the other.

22:00I mean, we've seen some of the tariff threats stemming from situations with Greenland, right, and kind of a push and pull there over negotiations and threats. And so I don't think we're going to see, you know, an end to international trade being used this way. And so if you're a company trying to do business and do a business globally with how you get your products, I think some of those diversification efforts are going to continue if you haven't cemented it yet, just to hedge against what you don't know that could be coming down the pike. That's a great point. I do think that that is one of the biggest things that has changed in like the last five to six years in terms of how do you build a retail business.

22:46You have to have a much more diversified supply chain and kind of be prepared to shift things at a moment's notice. Absolutely. Man, if I had the opportunity, I would just love to go down to the ports this weekend and see what's happening. If the container ship's coming in, are brands there picking up their tariffs? Are they putting them in bonded warehouses to stave off until we have a little more clarity? I'm just really curious how the short term is going to play out as much as the long term, as far as there's still goods being shipped to the US this very day. So what's going to happen to them and the brands affected there.

23:27I'm kind of curious about that. Well, this just in, I've always wanted to say that, but right as we were recording, President Trump gave a press conference in response to this decision. He called it deeply disappointing and rebuked the justices who ruled against the administration. I'm not going to get into the specifics here of what he said, but he did vow to continue tariffs in other ways, like the Trade Act of 1974. So more to come. I mean, but like we've heard from a lot of brands and retailers in this space, they're not expecting tariffs to just go away because of this decision. Right. And I think that it's just you have to get used to operating in this new business environment where this administration seems really keen on pushing tariffs through in any way possible.

24:18Yeah, I think this pushback was expected. It's just a matter of seeing, you know, the approach they're going to take, the administration is going to take and, yeah, how willing they are to push it through. But it's not going to happen overnight. So I guess we'll see what, yeah, how they're going to do it. it's never a dull moment never a dull moment and this is what's interesting it's like yeah some people can frame this decision as a big win for the business community and you know on paper and from a legal and policy perspective it very much is uh but in practice it doesn't necessarily mean there's any more clarity or certainty yeah well we will continue to follow this on modern retail.co Absolutely.

25:04And hey, for any listeners who will be in Palm Desert, California next week for the E-Tail West Conference, come find me. Drop me a line at mdaniels at modernretail.co if you want to link up. I'll be on the ground doing interviews about all things e-commerce, including tariffs and supply chain. And I'd love to meet more of our listeners.

25:26Thank you for listening to this episode of the Modern Retail Podcast, a show by Digiday Media. If you haven't already, please subscribe and head to Apple Podcasts to leave us a review and a rating. If you want more from Modern Retail, you can find us at modernretail.co. You can find me, senior reporter Melissa Daniels, on LinkedIn and Blue Sky. And you can also subscribe to our LinkedIn newsletter at the Modern Retail profile. We'll see you next week.

26:01Thank you.