Imagine you own a successful business and suddenly see your profits diminish overnight. While you try to understand the situation, there is news about a trade war that is beyond your control —well, this is the situation faced by numerous D2C brands entangled in the U.S.-China tariff war.

The trade relationship between the U.S. and China has always resembled a rollercoaster, characterized by decades of economic collaboration intertwined with escalating political strife. For a long time, globalization enabled businesses, particularly Direct-to-Consumer (D2C) brands, to flourish by sourcing goods from China and selling them in the U.S. However, with the onset of new tariffs in 2025 and increased geopolitical tensions, the landscape has dramatically changed. D2C brands that once epitomized efficient operations, and global aspirations are now caught in the middle of this turmoil.

While these tariffs may be directed at broader economic objectives, their repercussions are felt on a practical level—particularly by small and mid-sized enterprises that cannot simply “absorb” increased costs or pivot their supply chains overnight. Here are some thoughts I had around this.

Tariffs 101: What’s Going On?

Let's break it down: The U.S. has rolled out another series of tariffs on imports from China, affecting a broad spectrum of sectors such as electronics, consumer products, and technology items. Major brands, including Shein, have reportedly raised prices by as much as 377% to accommodate these increased expenses (The Daily Beast).

This significantly affects D2C brands, which typically operate with narrow profit margins and a heavy dependency on cost-effective manufacturing in China. Their entire business strategy relies on sourcing from areas like Shenzhen and selling directly to U.S. consumers. Tariffs disrupt this core model.

D2C companies were already contending with issues like escalating customer acquisition costs, changing algorithms, and demand fluctuations post-pandemic. Now, they face additional burdens from costly imports and supply chain

The Direct Impact of Tariffs on D2C Businesses

Increased Costs: The importation of products, such as Bluetooth speakers or skincare sets, from China has led to increased duties for direct-to-consumer (D2C) brands. This rise in costs can significantly impact the financial performance of smaller brands, making it a critical concern that cannot be overlooked.

Supply Chain Disruptions: The landscape of tariffs and geopolitical uncertainties introduces complications beyond mere cost increases. D2C brands frequently face challenges, including delayed customs clearance, rerouted shipments, and fluctuating prices, all of which contribute to a disorganized inventory planning process.

Reduced Profit Margins: Unlike larger retailers or conglomerates with diversified revenue streams, many D2C startups rely heavily on a singular stream of income. Attempting to maintain competitive pricing while managing increased costs can result in diminished profit margins. Conversely, raising prices may lead to customer attrition as consumers turn to more affordable alternatives or larger marketplaces.

Competitive Disadvantage: While larger corporations have the advantage of alternative suppliers in regions such as Vietnam or Mexico, D2C businesses often lack this flexibility. The current tariff environment inadvertently favors larger entities, creating challenges for smaller, innovative brands that strive to remain competitive in the marketplace.

Broader Implications & Missed Opportunities

Innovation & Entrepreneurship: The adverse effects of current trade tensions have quite a big impact on innovation. The increased costs associated with introducing products to market actively discourages early-stage businesses from exploring new ideas. And this in turn leads to the ecosystem losing out on emerging brands focused on creativity and consumer needs.

Impact on Consumers: Consumers should brace for higher prices and potential shortages of everyday items. The hidden costs associated with the tariffs are often transferred to the customers, resulting in higher prices or products that may no longer be available.

Original Intent vs. Reality: The main objective of tariffs was to protect domestic industries and reduce dependence on foreign manufacturing. However, if you look at the current production capacity in the U.S., it cannot fully substitute the imports [previously obtained] from China. The disconnect leads to policies that unintentionally harm compliant businesses grappling with the financial strains created by tariffs. According to Reuters, numerous small businesses are already showing signs of distress due to rising costs and dwindling demand. The implementation of tariffs only worsens these difficulties.

What is the Way Forward?

I think that the US will have to deescalate things first because China’s culture won’t allow them to capitulate at this point.  We really don’t see the US can make a deal with China in the short term. I think more likely both parties will pause this for a while and give themselves more time to sit down and have a negotiation and that might take a year or two. It's very difficult for Trump, particularly to deal with China, because his style is two men at the top, sit down in the room, and make a deal. He wants to negotiate that deal himself personally, but the Chinese would never allow that. In the Chinese system, you cannot risk the leader looking bad and losing face, so the deal has to be worked out at the lower levels, and then it's a formality when President Xi and President Trump come and shake hands. This is a mismatch, that they will eventually get over that, but not on a three-week timeframe.  There's so much complexity in the China dealmaking style that by the time they sat down and got on the same page, it might be too late for many businesses.

Here’s what I see as a possible solution or the way forward from this war:

Targeted Tariff Relief: Policymakers should consider providing exemptions or lower tariffs on key categories vital for direct-to-consumer (D2C) brands and smaller manufacturers. Even a short-term relief can give companies the time needed to navigate shifting market dynamics. 

Diversification of Supply Chains: Companies are increasingly looking to broaden their manufacturing bases beyond China, with countries like Vietnam, India, and Mexico in consideration. Yet, this shift comes with significant hurdles. We at ECU Worldwide, a leader in logistics and supply chain solutions, stress that diversification is not just about choosing a new location. “Businesses must recognize that moving operations abroad requires understanding intricate trade regulations, evaluating local manufacturing potential, and setting up new logistical systems. Organizations should be prepared to invest in creating robust, multi-source sourcing plans to stay adaptable.” While diversifying supply chains may reduce dependence on China, it requires a sustained effort to tackle regulatory challenges, build new alliances, and strengthen partnerships with global logistics providers. 

One thing we have seen is components from China are moved down to Southeast Asia, they assemble them and do what's called a “substantial transformation”. If you do enough value-added work and add other components it can now be said that your product is “made in Vietnam”, and then you ship it to the US. You have now added an additional logistics move, and your trade has gone up even though a system that is far less efficient, but it saves huge amounts of duty in the current environment. Good customs brokers are helping customers with tariff engineering and helping them understand what qualifies as substantial transformation.

The $800 Section 321 Loophole and Its Impact: A key aspect of the U.S. tariff system is the long-established provision that enables packages worth under $800 to enter the country without tariffs.  This rule was created to optimize government processes, since the expenses related to collecting tariffs often exceed the revenue generated. However, this provision has inadvertently led to a loophole. Larger businesses, equipped with the resources and infrastructure to navigate intricate tariff laws, have taken advantage of this exemption. By breaking down larger shipments into several packages, each valued below the $800 limit, these corporations effectively evade tariff duties. As a result, smaller direct-to-consumer (D2C) companies find themselves at a significant disadvantage, as they do not have the means to implement similar tactics. This discrepancy compels smaller brands to either absorb the extra tariff expenses—which ultimately increases their prices—or suffer from lower profit margins, while larger firms keep benefiting from tariff. This loophole was effectively closed on May 2, 2025, for shipments originating in China.  Some 3PL warehouses are now offering “break bulk” services which allow a formal (type 11) customs entry and the ability to move shipments directly from palletized air freight into the domestic parcel networks for last mile delivery.

Re-evaluation of Trade Strategy: Rather than primarily depending on protectionist measures like tariffs, the United States might consider enhancing its manufacturing capabilities and providing support to small businesses through trade credits, improved logistics infrastructure, and streamlined customs processes. This approach could fortify domestic resilience while fostering innovation. The aim should be to create a more adaptable and efficient logistics infrastructure in response to the evolving dynamics of global trade. Even within niche sectors like print-on-demand, trade policies must be nuanced. A blanket approach often detrimentally affects smaller enterprises.

Wrapping it up…

Without a doubt, prudent trade policy is essential to our economy. There is no denying the necessity of addressing trade imbalance issues, safeguarding intellectual property, and preserving economic independence. But the present general approach to tariffs is like applying a sledgehammer to a task that calls very precise instruments.

Encouraging new businesses to flourish and create freely is essential to the future of American entrepreneurship. As the forerunners of contemporary retail, direct-to-consumer businesses show what is feasible when entry barriers are appropriately low. Seeing these companies go out of business would be awful, not because they didn't provide value, but rather because their operations couldn't be sustained due to myopic regulations. We require focused, carefully considered trade measures that safeguard American interests while maintaining development prospects.

Addendum: A Much-Needed Pause in the U.S.-China Tariff Tensions:

Let's face it—while the U.S.-China trade tensions have cooled down a bit, smaller D2C brands aren't out of the woods yet. Beijing recently dropped tariffs on certain American goods from 125% to 10% for three months, and the U.S. brought its duties down to 30% [from 145%]. Sure, we can all breathe a little easier, but the global trade landscape is still like quicksand. One day you're on solid ground, the next you're sinking because of unexpected tariff hikes, shifting political relationships, or some unforeseen global crisis.  

Despite this volatility, many small and medium D2C brands still allow suppliers to call the shots when it comes to logistics. They accept quoted shipping costs without negotiation, agree to supplier-driven timelines, and rely entirely on third-party shipping partners. That might have worked in a more predictable world, but today, it's akin to handing someone else the keys to your business and hoping they steer in the right direction. Without control over logistics, brands risk unexpected cost surges, lack of inventory visibility, and delays in getting products to customers.

This is where a mindset shift is crucial. D2C brands need to move from being passive passengers to active drivers of their logistics strategy. By taking ownership of shipping, freight, and fulfilment processes, they gain transparency, reduce costs, and are better equipped to adapt when disruptions occur.

Of course, logistics management isn’t what most D2C founders signed up for—but that’s exactly why having the right logistics partner matters. At ECU Worldwide, we understand the specific challenges D2C businesses face. Our role is to provide end-to-end support—from negotiating competitive freight rates to navigating complex customs procedures—so that brands can focus on growth, not guesswork.

As global trade continues its unpredictable dance, resilience for D2C brands will hinge on the control and foresight they build into their logistics operations. Taking charge of logistics is no longer optional—it’s essential for long-term survival and success.