Global retailers may spread tariff pain by raising prices outside US
LONDON/FRANKFURT: Global retailers including sandal maker Birkenstock and jeweler Pandora are looking at spreading the cost of US tariffs by raising prices across markets to avoid big hikes in the United States that could hurt sales. A global presence gives large retailers an advantage to minimize higher tariff costs in the US. But it is putting central banks on watch as the strategy could fuel inflation in other markets like the European Union and Britain, where consumer prices have finally started to stabilize.
Birkenstock's chief financial officer said last week that a 'low-single-digit' price increase globally would be enough to offset the US tariff impact. Pandora CEO Alexander Lacik said the Danish company is debating whether to raise prices globally or more in the US, its biggest market.
'Companies are really thinking about distributing the tariff,' said Markus Goller, partner at consultancy Simon Kucher in Bonn, Germany. 'A manufacturer from outside of the US might say, OK, I cannot increase my prices to the US market that much, so I will do a little increase in the US, and a little increase in Europe, and in other markets.'
US President Donald Trump has imposed a blanket tariff of 10 percent on all global imports and is threatening higher so-called 'reciprocal' tariffs on its trading partners. When US behemoth Walmart said it would have to raise prices in response to tariffs, Trump ordered the world's biggest retailer via social media to 'eat the tariffs'. Announcing price increases in non-US markets could be a way for retailers to avoid a similar backlash from Trump.
'Obviously if your products coming into the US are now subject to tariffs, then math says that you have to raise your prices in the US,' said Jean-Pierre Dubé, professor of marketing at the University of Chicago Booth School of Business.
'But you don't want to be accused by the White House of raising prices purely because of US tariffs, so if you can demonstrate that your prices are going up everywhere then... it's kind of a shield.' Retailers could raise prices on certain products or in certain markets where consumers are less price-sensitive, and use that to subsidize other products or countries where price hikes would hurt sales more, said Jason Miller, professor of supply chain management at Michigan State University.
'Maybe a US-only firm has to raise (US) prices by 12 percent. But you, as a global firm, raise prices by 8 percent because you can play with pricing in other markets,' he said. If many multinational retailers do spread the tariff pain, higher inflation could spread even to countries which, like Britain, have already struck trade agreements with the US in a bid to minimize the economic fallout of tariffs.
Bank of England Governor Andrew Bailey earlier this month raised the issue of 'global companies that don't make that distinction [on tariff rates] and just say, we're going to impose a pricing solution which goes right across the world irrespective of those differences.'
'I think we do have to watch that carefully,' he said.
In the eurozone, inflation was finally gliding towards the European Central Bank's 2 percent target. European companies surveyed by the European Central Bank (ECB) in late March said price growth in the retail sector was subdued. But that was before Trump unveiled his tariff policy on April 2, and later hiked tariffs on Chinese goods to 145 percent. However, the US tariffs on China - lowered last week to 30 percent - have allowed some European retailers to source goods more cheaply than before.
Martino Pessina, CEO of Takko Fashion, which sells clothes in 17 European countries, said suppliers in China had offered lower prices as US retailers cancelled orders from factories there, and shipping costs also fell. 'What we don't know is if there's going to be inflation in the US and if that inflation comes to Europe or not,' Pessina said. Some big retailers have in any case ruled out raising prices outside the US. 'There is no reason to raise prices outside the U.S. because of the tariffs,' Adidas CEO Bjorn Gulden told investors after reporting results late last month. 'The discussion we're having on tariffs is only for the US.' ECB executive board member Isabel Schnabel has said the euro zone's inflation rate may initially dip below the central bank's 2 percent target, but that tariffs might prove inflationary further down the road.
While every company has its own pricing strategy, economists warn some could take advantage of tariffs to raise prices by more than rising costs, boosting their profits similarly to the inflation surge of 2021-2022 during the pandemic. -- Reuters
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Meanwhile, the bullish speculator positions that had built up in Q1 quickly reversed in Q2 amid the spike in risk and uncertainty that followed April's tariff onslaught and OPEC+'s accelerated resupply timetable. 'Net length', the difference between the number of 'long' (betting on prices rising) and 'short' contracts (positions staked on prices falling) declined by 155,838 lots w/w in the week-ending 4 April, the sharpest drop in the available data. Net length has recovered slightly more recently as hedge funds view some upside risk in US-Iran nuclear talks failing to progress. Growth at slowest Near-term oil demand growth was revised sharply lower following the escalation of the trade war between the US and China. The International Energy Agency (IEA), taking its cue from the earlier downgrade by the IMF to global GDP growth in 2025 (and beyond), has lowered its forecast for oil demand growth this year to 740 kb/d and 760 kb/d in 2026. This is the weakest rate of growth since pandemic-affected 2020. The IEA pegs total oil demand at 105 mb/d in 2025. OPEC lowered its demand growth forecast by a less severe 150 kb/d to 1.3 mb/d for both years. OPEC cites higher petrochemical production, solid road and air mobility as well as robust industrial activity in support of its more bullish oil demand growth projection compared to peers. This would also not be incongruous with its recent policy of fast-tracking the unwinding of members' voluntary supply cuts. Despite broad demand-side worries, OPEC+ surprised the markets by accelerating the pace of unwind of 2.2 mb/d in voluntary output cuts by the 'OPEC-8' (which includes Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman) from 131 kb/d per month from April to 411kb/d in May and then again for both June and July. The move was ostensibly framed as a bid to 'punish' serial quota violators, such as Kazakhstan and Iraq, for failing to cut production in line with their quota obligations and compensatory cut promises. The Saudis hoped the fiscal discomfort of freefalling oil prices would bring about the discipline that has so far been absent among these overproducing members. Part of the deal was that overproducing members would in good faith compensate for their non-compliance by cutting production according to a mutually agreed timetable thereby offsetting some of the supply that was about to be released. According to OPEC secondary sources, the average aggregate volume of OPEC-8 compensatory cuts required as 'payback' for members' overproduction from January 2024 to March 2025 is 305 kb/d, which would have easily offset the 131 kb/d of monthly incremental production OPEC-8 had originally planned. This would have resulted in a de-facto output cut. That said, in April, the first month in the schedule that called for higher OPEC-8 supply, monthly supply gains from the group, at 23 kb/d, fell far short of the 131 kb/d that had been planned. Only four of the eight producers – Saudi, the UAE, Oman and Russia – increased production. Despite lowering output in April, Kazakhstan and Iraq were once again producing well above their respective quotas never mind honoring compensatory cut pledges. Declaration of Cooperation(DOC) production (excluding quota-exempt Iran, Libya, Venezuela and Mexico) fell slightly in April to 30.0 mb/d (-17 kb/d). In the US, crude production hovered near record levels of 13.4 mb/d by mid-May, as per Energy Information Administration (EIA) data. (Chart 6).Following the plunge in oil prices and the downturn in global macroeconomic prospects, the EIA lowered its forecast for US crude oil output growth this year by nearly half to 208kb/d, the slowest rate of expansion since 2021. For 2026, growth is expected to decelerate even further to just 82kb/d as producers pull back on activity amid lower oil prices. According to a Dallas Fed energy survey, the average breakeven price in the shale patch to drill a new oil well is around $65/bbl, several dollars above the current price of West Texas Intermediate. US shale firms have also been grappling with the challenges of rising gas-to-oil and water-to-oil ratios, which are straining infrastructure and raising operational costs. The EIA is projecting US crude oil production to peak in 2027at 14 mb/d, with shale oil production topping out at 10 mb/d before declining through to 2050. The recent decline in oil prices is also weighing on broader non-DoC production, prompting downgrades to the outlook, though at an estimated 1.3 mb/d this year according to the IEA, supply growth is still well outpacing demand growth. This is being driven by higher production in Brazil, Guyana, and Canada as well as in the US. For 2026, however, the IEA sees non-DoC supply growth lagging demand growth, at 820 kb/d. Market balance Weaker oil demand prospects due to trade tariff-linked global macroeconomic headwinds and rising supply both from OPEC+ and non-OPEC+ producers, are weighing heavily on market sentiment and by extension oil prices. The fundamentals are signaling a loosening oil market that will shift from a slight supply deficit last year to a pronounced surplus in 2025. The IEA estimates the 'call' on OPEC+ (the volume of OPEC+ crude needed to balance the market after accounting for demand and non-OPEC supply) to be in the region of 41.2 mb/d on average in 2025. OPEC+ was already pumping significantly above the IEA's estimate for the call in Q1 2025 (+800 kb/d) before the group decided to ramp up output in April. And the increase in OECD commercial crude stocks in March was beginning to reflect that. With OPEC-8seemingly pressing ahead with a more rapid resupply pace, that buffer will quickly erode. Assuming no change to current OPEC-8 policy and no offsetting compensatory cuts, the entirety of 2023-2024's 2.2 mb/d of supply cuts would have been unwound by October 2025 (rather than the original late 2026), pushing the market into firm surplus territory, averaging 1.4 mb/d, according to our calculations. Risks to our standing oil price forecast of $70/bbl (2025 and 2026) are increasingly concentrated to the downside, barring significant supply-side geopolitical disruptions such as tighter Iran sanctions or, on the demand side, an upturn in global economic prospects, perhaps by a rolling back of trade tariffs.
