On Nov. 5, Donald Trump won the U.S. presidential election. As is the case with all politicians, there were many promises made during the campaign, but among Trump's proposals was a call to increase import tariffs on goods from China. Some are calling it Trump Tariffs 2.0, and the President-elect's intentions have only strengthened since winning the election.

Investors are concerned about how these tariffs could impact discount retail stocks, including Dollar Tree (DLTR -1.01%) and Dollar General (DG -0.69%). The market sees these two companies as direct competitors, and it's believed that the new Trump tariffs will squeeze profit margins for these companies.

However, a closer inspection surprisingly shows that Dollar Tree could feel a greater impact than Dollar General for one simple reason.

Why import tariffs could challenge discount retail

Take a drive almost anywhere in the U.S., and you'll soon agree that the Dollar Tree and Dollar General chains are massive. As of Nov. 2, Dollar Tree had nearly 8,900 locations of its namesake brand and over 7,700 Family Dollar locations. Dollar General had over 20,500 locations, as of Nov. 1.

Dollar Tree and Dollar General sell many of the same products as big-box retailers, but their strategies positions stores closer to consumers for convenience. Consumers will still shop online or at big-box stores, but for some purchases, these two chains can win by simply being closer to customers. After all, with nearly 40,000 locations between the two companies, a dollar store is rarely far away.

These stores don't necessarily have the cheapest prices in town -- in fact, prices can often be higher than at other stores. But Dollar Tree and Dollar General at least strive to be competitive on pricing, and many consumers perceive them as a low-cost option, underscoring the importance of price to the business model. That's why Trump's import tariffs could be problematic.

Without diving too deep into the weeds, President-elect Trump is proposing an additional 10% tariff on Chinese imports. If something from China costs $100 now, it would cost $110 after the new tariff is put in place.

Any company that imports products from China would either have to raise its prices or see profit margins shrink, and most discount-retail businesses will probably experience a combination of both. After all, they can't raise prices too much because consumers expect bargains. If they raise prices too much, they'll risk losing consumers, which is why they'll likely take a calculated hit to profit margins.

That said, the problem is more pronounced for Dollar Tree than Dollar General.

Why Dollar General shareholders might be able to breathe easier

Despite of all of their similarities, there's a staggering difference between Dollar Tree and Dollar General.

According to its annual report for 2023, Dollar Tree imports somewhere between 41% and 43% of its products (in terms of value, not quantity) from China. By comparison, Dollar General only imported a total of 4% of its products in 2023, whether from China or elsewhere. Therefore, the direct impact from Trump's tariffs would be greater for Dollar Tree than Dollar General.

The short story here is that if tariffs on Chinese imports go through, Dollar Tree would quickly be facing big decisions when it comes to pricing nearly half of its inventory.

Dollar General won't have the same immediate issues. That said, it's not immune to second-order impacts. The company stocks a lot of name-brand products from other businesses that import their products. So those companies would have to raise their prices before selling to Dollar General. In short, it could still trickle down.

That said, there's a difference here, and it's one reason I prefer Dollar General stock to Dollar Tree stock today. If tariffs raise costs for the name-brand products that Dollar General has in its stores, those prices will increase, regardless of which retailer stocks them. In other words, the prices for Dollar General should go up as much as they do at other retailers, which would, perhaps, allow it to better retain its bargain-price perception.

But what about Dollar Tree?

I'm not fear-mongering when it comes to the outlook for Dollar Tree. I believe that investors should keep historical context in mind. Import tariffs went up during President Trump's first term in office, and the gross margin and operating margin for both Dollar General and Dollar Tree saw little impact.

DLTR Gross Profit Margin Chart

DLTR Gross Profit Margin data by YCharts.

Therefore, the import tariffs on the table are one consideration for investors looking at Dollar Tree stock and Dollar General stock today. But there's far more to consider before buying shares of either company, and both have the potential to perform well despite changes in the cost of goods from China.