U.S vs Shopify merchants

The most obvious impact will be an increase in the cost of goods sold for merchants, many of whom are resellers or drop-shippers. For example, a $10 product imported from overseas now faces a minimum of 10%, increasing its base cost to $11. This increase in cost forces merchants to make a tough decision -- absorb the added expense and take a hit to profits or pass the cost on to customers, risking lower sales due to higher prices.

But that's just the best-case scenario. Merchants who rely on Chinese supplies will see their cost increase to $24.5 (thanks to the 145% tariff on Chinese goods), which could render their business model completely unworkable. These merchants must seek new suppliers quickly or face losing sales altogether. If they can't find an alternative at acceptable prices, they will have no choice but to shut down their online businesses.

Beyond pricing pressure, the new tariffs introduce added complexity at checkout. Merchants must now factor in duties and taxes during the shopping experience to keep customers informed about the latest pricing. Failure to promptly give the correct information could lead to customer complaints or lower profits.

Also, merchants will have difficulties planning for the next few quarters, given the uncertainties around the negotiation between the countries involved. Placing an order for shipment today could result in a much higher total cost when the products arrive in the U.S. -- by then, the reciprocal tariff rate could have been reinstated. Merchants will have no choice but to take a wait-and-see approach, leading to a weaker sale volume in the near term.

Even if merchants survive in the short term, they will inevitably face a much higher cost structure in the future, even if they import from countries with low tariffs or source locally. After all, tariffs will inevitably increase the cost of production of goods globally. And consumers paying more for almost everything will likely have less disposable income to spend, impacting merchants' long-term sales prospects.

In short, there will be massive pain down the road for Shopify's merchants.