Summary of "Trump’s Tariffs: What They Mean for Beauty’s Supply Chain" – The Barefaced Podcast

Release Date: April 16, 2025

Host: Lily Twelve Tree

Introduction

In the episode titled "Trump’s Tariffs: What They Mean for Beauty’s Supply Chain", Lily Twelve Tree delves into the intricate impacts of newly imposed tariffs by former President Donald Trump on the global beauty industry. Originally intending to explore the Canadian beauty market, Lily pivoted to the pressing issue of tariffs as it rapidly emerged as a central concern affecting beauty brands and supply chains worldwide.

Part 1: Understanding the Tariff Landscape

Announcement and Immediate Impact

On April 2, 2025, Donald Trump announced a series of sweeping tariffs targeting various countries, set to take effect on April 9. This move, branded as "Liberation Day" by the Trump administration, triggered a significant market downturn:

• S&P 500 experienced a 4.9% drop, marking the second-largest daily point loss in history.
• Elf Beauty stock plummeted by 23.4%.
• Estee Lauder saw a 15.4% decline.

Tariff Calculation and Criticism

Lily explains that the tariffs were determined using a formula focused on the U.S. trade deficits with each country. Countries where the U.S. imports more than it exports faced higher tariffs. For instance:

• China: Imposed 34% reciprocal tariffs against the U.S., alongside a staggering 67% tariff on U.S. goods (03:28).

However, the methodology behind the tariff percentages was heavily criticized:

• Ronal Reagan’s 1988 stance on tariffs highlighted the pitfalls of protectionism, drawing parallels to Trump’s approach.
• Economist Brent Niemann critiqued the formula, stating, "The goal driving the formula and driving the policy was to eliminate bilateral trade imbalances... They use that logic to derive a formula." (08:54).

Exclusions and Broader Implications

Notably, the tariffs target goods but exclude services such as tourism, banking, and technology. This exclusion benefits industries like U.S. services, which exported over $1.026 trillion in 2023, nearly double that of the U.K. (09:36).

Part 2: The Ripple Effect on the Beauty Industry

Challenges for U.S.-Based Brands

Brands manufacturing within the U.S. face increased costs due to tariffs on imported packaging and raw materials. Charlotte Palermino of Ju Skin emphasized the complexities of relocating manufacturing:

"Every cosmetic formulation has a recipe... you cannot recreate the product if you leave the contract manufacturer." (13:44).

Dependency on Foreign Manufacturing

Many beauty brands rely on international manufacturers who own their formulas, limiting the ability to shift production domestically without compromising product integrity. Lily recounts incidents like Emco Beauty's manufacturer showcasing products without the brand’s logo, underscoring the precariousness of relying on external manufacturers.

Supply Chain Breakdown

Utilizing data from the Observatory of Economic Complexity, Lily highlights the significant imports of beauty products and packaging from countries like France, South Korea, Canada, China, and Italy. Specifically:

• Packaging Imports:
  • Pumps and Sprayers: 63.7% from China
  • Glass Bottles: 30% from Mexico, 19.3% from China

The heavy reliance on China for both finished goods and essential packaging components exacerbates the impact of the tariffs on the beauty industry.

Part 3: Future Outlook and Strategic Responses

Shift Towards Nearshoring and Diversification

As tariffs escalate, beauty brands are compelled to reconsider their manufacturing strategies:

• Automation and Technological Advancements: Reducing reliance on cheap labor allows brands to consider domestic manufacturing without significant cost increases.
• Triangular Trade with Mexico: Chinese companies are relocating parts of their supply chains to Mexico to circumvent U.S. tariffs, leading to a surge in imports from Mexico over China. This strategy not only reduces tariff burdens but also allows products to be marketed as "American Made."

Impact on Small vs. Large Businesses

The tariff-induced cost hikes disproportionately affect smaller brands:

• Large Conglomerates: Entities like L'Oréal can absorb tariff costs due to higher margins, maintaining their market dominance.
• Small Businesses: With slim margins, increased costs can lead to bankruptcies, reducing market diversity and reinforcing monopolistic trends within the U.S. beauty market.

Retail Dynamics and Direct-to-Consumer (D2C) Models

Higher tariffs pressure brands to reevaluate their retail partnerships:

• Reduced Reliance on Mega Retailers: To maintain profitability, brands might shift towards online platforms like Amazon and TikTok Shop, which offer lower commission fees compared to traditional retailers like Sephora or Ulta.
• Changing Consumer Behavior: The move towards D2C necessitates brands to handle logistics independently, potentially altering the consumer shopping experience.

Conclusions and Reflections

Lily Twelve Tree underscores the profound and multifaceted repercussions of Trump's tariffs on the beauty industry's supply chain. The episode highlights how economic policies can inadvertently widen the gap between large conglomerates and small businesses, reshape global trade dynamics, and influence consumer choices.

Key Takeaways:

• Complexity of Tariff Implementation: The arbitrary and opaque tariff calculation methods undermine the policy’s intended goals.
• Global Supply Chain Vulnerabilities: Heavy dependence on specific countries like China for manufacturing and packaging exposes brands to geopolitical risks.
• Strategic Adaptations Needed: To thrive, beauty brands must explore diversification, nearshoring, and technological investments to mitigate the adverse effects of tariffs.

Lily concludes by contemplating the future of beauty retail in the U.S., questioning whether brands will continue to rely on traditional retail channels or pivot towards more sustainable and transparent supply chain practices.

Notable Quotes

• Brent Niemann (Economist):
  "The goal driving the formula and driving the policy was to eliminate bilateral trade imbalances... They use that logic to derive a formula." (08:54).

• Charlotte Palermino (Founder of Ju Skin):
  "Every cosmetic formulation has a recipe... you cannot recreate the product if you leave the contract manufacturer." (13:44).

Final Thoughts

Lily Twelve Tree emphasizes the importance of understanding the interplay between political decisions and business operations within the beauty industry. By dissecting the ramifications of Trump's tariffs, listeners gain a comprehensive view of the challenges and strategic considerations shaping the future of beauty brands and their global supply chains.

For a deeper dive and access to exclusive resources referenced in this episode, subscribers are encouraged to visit barefaced.substack.com.

Timestamp Guide:

• [00:28] Introduction to the topic of tariffs
• [02:55] Brief interlude with Ronald Reagan’s quote
• [03:28] Discussion on Reagan's view versus Trump's policies
• [08:54] Expert insight from Brent Niemann
• [09:36] Analysis of services excluded from tariffs
• [13:44] Challenges of moving manufacturing stateside with insights from Charlotte Palermino
• [16:11] Further discussion on packaging imports and supply chain complexities