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China trade – Hoping for a Mar-A-Lago miracle?

By admin-demo 19 Mar 2019

China trade – Hoping for a Mar-A-Lago miracle?

While we wait for news of the next trade summit between the United States and China, Rick Helfenbein, president and CEO of the American Apparel & Footwear Association (AAFA), mulls the consequences of President Trump’s flawed trade strategy – including long-lasting damage to global supply chains.

The United States and China will have a trade summit, but when? The chocolate cake that was readied for 27 March at Mar-A-Lago has gone stale while America remains glued to a potential outcome that would cure our China trade ills. Should we hope for remedy this April?

The optics for the Mar-A-Lago meeting suggested a big win for the Trump administration, coupled with face-saving respect shown to China. However, before enthusiasm reaches a new high, one must understand that the path to victory has been rocky, and side-effects have created long-lasting economic carnage for the apparel, footwear and accessory industries that maintain sophisticated supply chains.

Over the years, our supply chains have been carefully improved to establish best-in-class methodologies for social compliance, product sustainability, environmental welfare, human rights, and worker rights. These efforts will likely suffer and take years to re-establish as the supply chain is moved in response to the current trade war. A final agreement may help our quest to protect intellectual property and our ability to sell product into China. However, when the dust settles, will the damage to the supply chain be worth it?

To explain what has transpired over the last few months, I like to think of the President sitting in the White House (in his own words he was “Home Alone”) over the Christmas holiday with the classic Ed Sullivan “Topo Gigio” puppets sitting on his shoulders.

Topo 1 is the TARIFF-MAN who whispers in the President’s ear – “Trade wars are good and easy to win. Keep the tariffs going and we’ll teach them a lesson.”

Topo 2 is the DOW-MAN who says – “Tariffs and trade wars are bad. Keep going and, for sure, you will crash the economy.”

By January 2019, the President had made his decision – Topo 2 would prevail. The Federal Reserve would slow down its interest rate aggression, and China would help us to resolve the trade dispute.

However, while we wait for chocolate cake, retail continues to suffer the consequences of a flawed trade strategy, and we all need to realise the damage the President’s trade war has wrought. China is not paying the tariffs, we are.

The US retail community has spent the last ten years in recovery mode from the 2008 recession. It has become even more hazardous, as millennial shoppers took the reins and insisted to buy goods “their way.” Gone were the traditional methods of shopping, and today’s retail survivors have learned to adapt to a landscape that was different to anything experienced before. Just as we were pulling out of the retail morass, along comes Topo 1 with his tariffs, and we suddenly experience additional suffering for the retail community.

Let’s look at the tale of the retail tape:

  • There were more retail bankruptcies in 2017 than there were in 2008.
  • There were more shrinkages in retail square footage in 2018 than ever before (over 100 million square feet).
  • There have been more announced store closures in 2019 than in 2018 to date – with a run-rate of almost 500 announced door closures per week.

The tariffs (and the potential for additional tariffs, and that tariffs will remain in effect after a deal) have severely altered our plans for global supply chains to a point where it is doubtful they will ever recover. In China, productivity had reached a point where it was overshadowing cost increases. The supply side had worked to improve product safety, sustainability, and human rights for the workers.

Now, as our industry is being forced to leave China (in a rush to reduce exposure), all this work has imploded. A bumper-car effect has settled in, and big users are fleeing to other countries as they literally bump smaller players out of existing facilities. This has now permanently damaged the existing supply chain and is poised to create severe price inflation.

The result is simple – American consumers will be paying more for less. Prices will rise. Sales will drop. To make matters worse, these negative effects are clearly on the horizon and retail analysts sense blood in the water.

While it remains important to point out the key issues of this debate, let’s all hope for a speedy and peaceful resolution to this trade war – one that we never should have started in the first place.

Let’s hope for a “Miracle” at Mar-A-Lago, as we remember the quote from the Christmas movie ‘Miracle on 34th Street’: “Faith is believing in things when common sense tells you not to.”

About the author: Rick Helfenbein is president and CEO of the American Apparel & Footwear Association (AAFA) and is a strong advocate for a robust US trade agenda. He lectures frequently about politics and international trade and has appeared on CNN, CNBC, Fox, BBC and Bloomberg. Follow him on Twitter @rhelfen