US retailers and analysts say the latest proposal by US President Donald Trump to impose US$267bn of additional tariffs on Chinese products would be bad news for the retail sector, potentially leading to higher prices for consumers if passed on.
The US Administration is thought to be finalising plans for extra tariffs of up to 25% on $200bn of Chinese imports after the public comment period ended on Thursday (6 September). The list of products on which the additional tariffs would apply includes all textiles, all travel goods, all hats, and select apparel, accessories, and machinery used in domestic US manufacturing. China has said it will retaliate if the tariffs are imposed.
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Speaking to reporters on Air Force One on Friday (7 September), Trump reportedly said he was “ready to go” on another $267bn of tariffs on Chinese goods at short notice, according to Reuters and Bloomberg.
The world’s two largest economies have already applied tariffs of $50bn to each other’s goods. If the President goes ahead with his latest threat, tariffs would extend to $467bn of Chinese imports – covering the entire value of all products the East Asia country exports to the US. The move would also bring apparel exports from China into the spat for the first time.
No statement has yet been made by the White House or the Office of US Trade Representative (USTR) on Trump’s intentions.
While many businesses agree China has benefited from unfair trade practices such as stealing US intellectual property (IP), they believe the tariffs will ultimately hurt the economy, domestic manufacturing, and jobs. Talks between the two countries aimed at easing tensions have so far failed.
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By GlobalDataOn news of the fresh round of potential tariffs on Friday, the National Retail Federation (NRF) tweeted: “Tariffs of this scope would mean higher prices on virtually everything sold in US stores and fewer American jobs.”
#Tariffs of this scope would mean higher prices on virtually everything sold in U.S. stores and fewer American jobs. #TariffsHurthttps://t.co/jZ2ZmCRqUZ
— NRF (@NRFnews) September 7, 2018
Neil Saunders, managing director of GlobalData Retail, concurs. He says the new tariffs are bad news for the retail sector, especially as the latest round seems to extend the tax to a vast array of consumer goods.
“Many retailers will now be faced with a difficult choice of whether to pass the cost increases across to consumers or to take a hit on their margins. The exact response will vary from retailer to retailer but, in our view, both strategies are likely to be used.
“The pain for retailers real, not least because it comes amid a raft of other cost increases including more spending on technology, elevated logistics costs, higher gas prices, and rising labor expenses. In short, additional tariffs are the last thing the retail sector wants.
“Fortunately, the consumer is currently in a position to cope with some mild rises in retail prices. However, a rise in prices across the board will likely result in a decline in retail volumes over the longer term, which will be unhelpful to the sector.”
Saunders believes shifting production is a further option for some retailers, and many have been looking at this. However, he warns that, given the extensive manufacturing capacity in China and the difficulty associated with quickly shifting supply chains, this can only be achieved over a period of time and will, in itself, result in some additional expense.
“Ultimately, while the President may have a sound political motivation for trying to level the playing field in world trade, these policies will bring at least short-term pain to retail and to the consumer.”
