Black Friday: Shoppers race to beat the tariffs

Black Friday had an unusual edge this year. Holiday deals drew the usual crowds to malls and shopping sites, but many shoppers were also worried that import tariffs would push up the price of electronics, footwear and home appliances in early 2025.

A short season and a new threat

The calendar was already working against retailers. Thanksgiving fell on 28 November, the latest date it can, leaving five fewer shopping days before Christmas than last year and squeezing spending into a shorter stretch of discounts. Then on 25 November Donald Trump said he would impose a twenty-five per cent tariff on all goods from Mexico and Canada, and an extra 10 per cent on Chinese imports, on his first day in office. Much of America's consumer electronics, from laptops to games consoles, is still assembled in China, so the threat landed on exactly the goods that Black Friday promotions favour.

Expectations going into the season were modest. The National Retail Federation forecast holiday sales growth of 2.5 to 3.5 per cent, slower than in the boom years after the pandemic. The big chains had already given mixed signals: Walmart raised its full-year outlook this month on strong demand from better-off shoppers trading down, while Target cut its forecast and its shares fell sharply. The pattern suggests spending is holding up but shifting towards the cheapest outlets.

Buying before the tariffs

Consumers brought forward purchases they might have made next year, hunting for discounts before the tariffs arrive. Retailers were glad of the traffic and used it to clear stock. Spending pulled forward has a cost, though. Sales made now come out of the opening quarters of 2025, which will probably look thin as a result.

The effect is largest for goods people replace rarely. A household that buys a television or a washing machine in November will not buy another for years, so each early purchase removes a sale from the months ahead rather than adding a new one. Retailers had their own reasons to push these items, since a stronger dollar has made imported stock cheaper and many brought in goods early this year to avoid disruption at the ports. Clearing that stock at a discount protects cash flow now at the expense of margins.

The shift will also muddy the official data. A strong fourth quarter for consumer spending followed by a soft first quarter could be read as a turn in the cycle when it is only a change in timing, and the late Thanksgiving already moves spending between November and December in ways that seasonal adjustment handles poorly. Policymakers at the Federal Reserve will have to look through both quarters to judge underlying demand.

Some retailers have been explicit about the threat. Best Buy's chief executive said this week that suppliers would pass tariff costs on and that consumers would probably face higher prices. China supplies a large share of the company's goods. Chains that sell mostly imported electronics have little room to absorb a duty of 10 per cent or more, and even less for the rates floated on Chinese goods during the campaign.

What tax changes teach

The clearest precedent comes from Japan. Before its consumption tax rose from 5 to 8 per cent in April 2014, households rushed to buy cars and appliances in the first quarter, and the economy shrank in the second as the rush unwound. The government later postponed the next planned increase. A tariff works like a sales tax on imports and the expectation of one produces the same rush and hangover, though a threatened tariff is less certain than a legislated tax, which should keep the rush smaller.

America's own experience shows why shoppers fear the price effect. After safeguard duties on imported washing machines took effect in 2018, washer prices rose, and so did the prices of dryers, which faced no tariff but are usually sold as a pair. Manufacturers and retailers used the duty as cover to lift prices on related goods as well.

The first Trump administration recognised the seasonal risk. In 2019 it delayed tariffs on laptops, phones and games consoles until mid-December to spare the holiday season, and then cancelled most of them when it reached its Phase One trade deal with China. Retailers will lobby for similar treatment this time. Whether the new administration grants it will say a lot about how seriously it takes the price effects of its trade policy.

Who pays for the rush

Large chains with scale and the balance sheets to discount heavily are best placed to capture the early spending. Smaller specialist retailers selling imported goods face a lean first quarter with less cushion to absorb it. Suppliers of electronics and appliances will see strong orders now and weaker reorders later, as shops that sold through their stock wait to learn what the new duties will be.

Household finances are also less comfortable than the headline spending figures suggest. Researchers at the Federal Reserve Bank of San Francisco have estimated that the extra savings built up during the pandemic have been used up, and delinquency rates on credit cards are above their pre-pandemic levels. Buy-now-pay-later schemes have become a standard option at online checkouts, which lets shoppers spend now and pay over the next few months, deepening the hole in early next year's budgets.

The case against this view is that the labour market remains firm and wages have been rising faster than prices, so households may have room to keep spending into the new year. That support is real, but it cannot recreate demand for goods already bought. The figures to watch are retail sales for December and January and the first tariff orders after the inauguration on 20 January.

Tariff fears made this Black Friday look healthier than it was. Retailers should expect a weak start to 2025, once shoppers who spent early stay home. Expect retail sales to look strong in the December data and to fall back in the first quarter, with electronics and appliance sellers hit hardest.