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What Is a Tariff? How Trade Taxes Affect the Brands You Love

Tariffs are import taxes — and right now they're affecting everything from Nike trainers to BYD electric cars. Here's how they work.

6 min read•April 2026

What Is a Tariff? How Trade Taxes Affect the Brands You Love

Tariffs are mentioned in almost every major earnings call right now. Nike, H&M, BYD, Lululemon — they've all flagged tariffs as a headwind to their business. But what is a tariff, exactly, and how does it affect the companies behind the brands you follow?

The Simple Definition

A tariff is a tax imposed by a government on goods imported from another country.

When the US government puts a 25% tariff on shoes made in Vietnam, any company importing those shoes into the US has to pay 25% of the product's value as a tax to the US government.

That extra cost either gets absorbed by the company (reducing profit margins), passed on to consumers (higher prices), or leads to a rethink of where products are manufactured.

Why Governments Use Tariffs

Protect domestic industries — making imported goods more expensive gives local manufacturers a price advantage.

Generate revenue — tariffs are a source of government income.

Political leverage — tariffs are used as bargaining chips in trade negotiations between countries.

National security — some governments restrict imports of technology or materials considered strategically important.

How Tariffs Hit Fashion and Consumer Brands

Most global fashion brands manufacture in Asia — China, Vietnam, Bangladesh, Indonesia — because labour and production costs are lower there.

When the US imposes tariffs on goods from those countries, companies face a difficult choice:

  1. Absorb the cost — accept lower margins to keep prices stable
  2. Raise prices — pass the cost to consumers, risking lost sales
  3. Move production — shift manufacturing to countries not subject to tariffs (expensive and slow)
  4. Mix of all three — the most common response

This is why tariffs show up as margin pressure in earnings reports. Nike said tariffs added roughly $1.5 billion to its annual costs. H&M cited tariffs as a negative factor on gross margin. Lululemon flagged $380 million in tariff costs for FY2026.

How Tariffs Hit Technology and EV Companies

The EU and US have both imposed significant tariffs on Chinese-made electric vehicles to protect their domestic EV industries.

BYD faces tariffs of around 17-27% in the EU on top of standard import duties. This makes BYD cars more expensive in Europe than they would otherwise be — which is partly why BYD is building factories inside the EU (in Hungary) to manufacture locally and avoid those tariffs.

The De Minimis Exemption — and Why It Mattered

Until recently, the US had a rule called the de minimis exemption that allowed packages worth less than $800 to enter the country duty-free. This was extensively used by Chinese fast-fashion platforms like Shein and Temu to ship products cheaply to US consumers.

When the US removed this exemption, it significantly increased costs for those businesses. Some of that shifted demand back towards established brands like H&M and Nike — an unintended benefit for their US businesses.

See It in Action

Tariffs have been one of the biggest themes across Ask AYO's earnings coverage:

  • Nike Q3 FY2026: Gross margin fell 130 basis points primarily due to tariffs. Without the tariff impact, margins would have expanded. Nike's annualised tariff cost is approximately $1.5 billion.
  • H&M Q1 FY2026: Tariff costs cited as a key negative factor on gross margin, even as supply chain improvements partially offset the impact.
  • BYD Full Year 2025: BYD is building factories in Hungary and Brazil specifically to manufacture inside tariff-free zones and avoid import duties.
  • Lululemon Q4 FY2025: Expected tariff costs of $380 million in FY2026, up from $275 million the previous year.

The Bottom Line

Tariffs are effectively a tax on global business. They increase costs for companies that manufacture in one country and sell in another — which is most major consumer brands. When you see gross margins falling in an earnings report, tariffs are often part of the explanation. And when you see companies shifting manufacturing locations, it's usually tariffs that are driving the decision.

Related Reading

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