News Brief

US-China Trade War Has Retailers Shook

June 21, 2019
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Trends and Forecasts

How Trump’s Tariff War with China Threatens Retailers

After two years, on and off the campaign trail, of big talk from both President Trump and China’s President Xi Jinping regarding trade policies, a bevy of tariffs has threatened to shake up the United States’ consumer economy.

The timeline from mere campaign promises to devastating international tariff policy was not a swift one. In 2017, President Trump had signed two executive orders calling for the implementation of tighter tariff enforcement and a full review of American tariff deficits, causes and potential solutions. Additionally, President Trump ordered a probe into Chinese intellectual property theft under Section 301 of America’s 1974 trade law, which establishes how the U.S. should enforce trade agreements later that year.

Things escalated in January 2018 when President Trump officially started imposing tariffs on goods disproportionately imported from China such as solar panels and washing machines. On March 8, 2018, President Trump would additionally order 25 percent and 10 percent tariffs on steel and aluminum imports, respectively. China retaliated imposing 25 percent tariffs on American products, specifically. Over the next year America and China would go back and forth imposing additional tariffs on their respective imports and goods, essentially, starting a trade war.

This past weekend, on June 13, industry giants finally spoke out after what they described as “tit-for-tat tariffs.” In a joint statement sent to the White House, 600 retailers – including Walmart, Macy’s, Target and IKEA – pushed President Trump to end the trade war with China citing the potential for the massive negative impact on their respective industries.

Cited in this joint statement is a February 2019 study published by the Trade Partnership Worldwide. The study estimates the impact of Trump’s trade war with China including an annual cost of $2,389 for a year’s worth of goods for an average family of four. Additionally, it estimates as many as 2 million American jobs could be lost due to the constriction the tariffs place on retail businesses and manufacturers.

For the retail industry, explicit costs on goods would be poised to hike up past the point of reasonable purchase effectively making retailers unable to absorb the impact of the tariffs. A lot of retailers source their materials and products from Chinese manufacturers and production companies, so naturally the tariffs emplaced on Chinese goods would disproportionately effect consumer businesses. Estimates from a separate Trade Partnership Worldwide report found American consumers would be on the hook for billions more in retail costs including upwards of $2.5 billion more for footwear, $4.4 billion for apparel and $1.6 billion more for household products among other increases.

While some retailers might be primed to see the increase in product costs as a potential benefit, as consumers are forced to pay more for the same products, consumer consumption would decrease between 8 to 32 percent based on the industry. Effectively, negatively impacting the consumer and the corporation by increasing costs and consequently decreasing consumption.

The uncertainty inherent in the back-and-forth trade policies between President Trump and President Jinping has created a degree of chaos in the retail and consumer markets. Market giants like Walmart can offset the negative impact of tariffs, for a time, but smaller retailers do not have the economic cache or capital fortitude to counterbalance some of the more pernicious effects. If a resolution to the US-China trade war could spell disaster for American retailers: for both the short and long term, both big chain stores and mom-and-pop shops.

By BRANDON SAMS | Contributing Writer

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