The presidents tariff strategy could be driving America toward a recession

The president's tariff strategy could be driving America toward a recession

A new round of US tariffs kicks in today (1 September) that will result in a direct tax on 92% of all apparel products and 53% of all footwear items imported from China. Here Rick Helfenbein, president and CEO of the American Apparel & Footwear Association (AAFA), explains the industry's concern at the likely impact of this tariff manoeuvring, both now and into the future.

President Trump said: "I love America. And when you love something you protect it passionately."

WOW, we love American retail, but is he trying to stop us from protecting it?

Our gross domestic product is 66% skewed to consumer expenditures, with about 33% directly tied to the consumer – and at least 10% of the jobs in America are connected to retail. Any slowdown in our sector, combined with uncertainty in manufacturing, will crush the American economy. Just recently the Congressional Budget Office indicated that our economy will expand only by 2.3% this year and growth could be limited to 1.8% over the next ten years BECAUSE of tariffs.

Before he was president, Mr Trump said: "I love Christmas. You go to the stores now, you don't see the word Christmas. It says, Happy Holidays all over. I say, where's Christmas? I tell my wife, don't go to those stores."

WOW, we wonder if the president's new tariff policy will keep shoppers away from retail stores. After all, he just announced a new round of tariffs that kicks in September 1st, resulting in a direct tax on 92% of all apparel products and 53% of all footwear items, with the rest of these products being hit on December 15th. Happy Holidays to us! Has the Grinch run out of love for holiday shoppers?

"Could the president's tariff strategy be driving America toward a recession? The simple answer is YES!"

Perhaps the president's "Figgy Pudding" trade strategy is starting to cloud the air. You remember that strategy – the one that evolved in the Oval Office with: "Bring me some tariffs" and bring them right now!

After September 1st, product from China will be flowing into the USA at the rate of $1 million dollars a minute, and these items will be tariffed (taxed) at either 30% or 15%. Surely, the consumer won't notice, and life will go on at retail – or will it?

Looming recession

Our concern is that this tariff manoeuvring may indicate that the famous "R" word is looming in the background. Could the president's tariff strategy be driving America toward a recession? The simple answer is YES!

For more than a year, we have been ringing the alarm bell that our industry was under attack by tariffs, and we have asked the administration (time and time again) to stay away from the American consumer. Prior to this onslaught, we were already the most tariffed industry in America. While our products represented only 6% of imports, we were paying 51% of all tariffs collected. Since our original tariffs won't go away, if you were paying 17% for a backpack from China and you add the 30%, you are now paying 47% duty! This is just crazy, and with all that in mind, it's clear that our industry's positive impact on the economy is being treated an afterthought, a hapless pawn in an international conflict that has little or nothing to do with our area of expertise.

People ask us all the time, why not bring more of the assembly business back to America? It simply isn't feasible.

"People ask us all the time, if USA is not an option for large-scale assembly – where should we go to source our products? Maybe we should start looking at Greenland"

Made-in-USA accounts for 3% of the market, and there are not enough factories or workers to re-enter the business into America on a scale that would be competitive on the world stage.

Alternative sourcing options?

People also ask us all the time, if USA is not an option for large-scale assembly – where should we go to source our products?

Well, that's another problem. If we just look at apparel – China holds a 42% USA market share and the number two country (for many years) is Vietnam, which holds a 14% market share. Then we go to Bangladesh at 7% and Indonesia, India, and Cambodia at 4% each.

Combined, these six countries control 75% of the USA market, and to make a bad situation worse, the president has also threatened Vietnam and India with tariffs – which means that the remaining options are Bangladesh, Indonesia, and Cambodia. It is also interesting to note that Indonesia is under threat to lose its ability to use the Generalized System of Preferences (GSP), which Bangladesh has already lost, while Cambodia's duty-free access to the EU is being reviewed. Maybe we should start looking at Greenland?

Several of our member companies have surrendered to the idea that they will move some of their production out of China, but they will stay there for the balance. Bottom line, because of the new tariffs and the fact that we are unable to move out quickly, prices will go up, sales will go down, jobs will be lost. It's more and more difficult to plan and strategise our business and the net result of all this will be RETAIL UGLY.

In terms of our footwear trade, the situation is even worse. Footwear is a highly specialised (and already a highly tariffed) business. While 53% of footwear will be hit with tariffs on September 1st, our members have even less options for places to move.

So, as we hunker down and hope (against hope), that this tariff storm will pass, we look for more love from the administration in the upcoming Holiday shopping season. And we look to Nancy Sinatra for some parting retail wisdom about the net effect of the tariff footprint:

"These boots were made for walking, and that's just what they'll do.
"One of these days, these boots will walk over you."

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 on politics and trade. He has appeared on CNN, CNBC, FOX, BBC, Yahoo & Bloomberg. Follow him on Twitter @rhelfen