"A consumption tax"— Shark Tank's Kevin O'Leary shares that tariffs are passed to consumers and strain profit margins

In an interview posted to Instagram on May 21, 2025, Shark Tank investor and entrepreneur Kevin O’Leary responded to a question about the impact of tariffs on small businesses, particularly when they are unable to raise prices to offset increased costs. He described tariffs as a disguised form of taxation.

“Most countries on Earth have what’s called a value added tax, a consumption tax. We don’t apply that here in America because it’s very unpopular as an idea. This tariff is exactly that. It’s a consumption tax,” he stated.

The Shark Tank investor noted this creates pressure on pricing and profit margins.

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Shark Tank's Kevin O'Leary says tariffs function as a hidden consumption tax affecting pricing and sourcing

Tariffs operate like input costs that shift pricing decisions

Kevin O’Leary explained how tariffs directly affect input costs in small and medium-sized businesses. Using an example of a bakery, the Shark Tank investor said,

“Let’s hear a bakery. You make carrot cake. Cost you $5 to make it, you sell it for $10… and all of a sudden the cinnamon you use, because of cinnamon prices worldwide, goes up 50 cents... You raise your price to $10.50... Commodities vary in price.”

He explained that businesses can choose to absorb the increased costs, but doing so reduces profitability and may lead to layoffs, describing this as the decision to "eat it, so to speak." He referred to tariffs as input costs that either reduce profitability or force businesses to adjust pricing.

“You’re passing the input cost on. A tariff is an input cost,” he added.

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Businesses are forced to share the burden or adjust sourcing

O’Leary emphasized that the effects of tariffs are being managed in a few specific ways.

“The way businesses, like my 54+ plus private companies, are dealing with this right now is, we’ll eat some of it and we’ll pass some of it on,” the Shark Tank investor said.

He explained that this shared burden reflects a strategic decision to balance competitiveness with maintaining margin levels. He also mentioned a shift in sourcing strategy, noting that businesses will change their "behavior in sourcing if these tariffs are maintained over a long period of time."

According to O’Leary, this adjustment is not limited to small firms. He pointed to large retailers such as Walmart.

“Walmart is one of the most behemoth retailers on Earth, and much of its product is sourced or components of it sourced in China,” he noted.

Despite the scale of operations, all businesses are affected similarly in how they manage tariff costs. Kevin suggested a widespread industry response depending on how long the tariffs remain in place.

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Policy uncertainty drives economic caution

O’Leary concluded by underscoring the uncertainty around future tariff levels, highlighting that the most critical unknown is what the absolute "tariff" rate will be after next January. He explained that this uncertainty is closely tied to political developments, particularly the upcoming midterm elections.

“I figure Trump has to nail this before he gets into the midterms or he’ll lose his majority mandate,” O'Leary said.

The Shark Tank investor also questioned potential reciprocal tariffs from trading partners.

Referring to China, he said,

“Is it a 10% reciprocal tariff? That’s essentially a 10% VAT tax on American consumers.”

While the market may anticipate resolution, O’Leary emphasized that businesses remain cautious until clearer policies are confirmed.

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