The Trump administration’s promise to keep consumer products out of the trade war—so shoppers wouldn’t take a hit—may be falling by the wayside.
The U.S. Trade Representative released a new round of proposed tariffs on Chinese goods, listing 200 pages of items with a value of $200 billion. They target baseball gloves, handbags and digital cameras, among other goods. The move is in response to what the Trump administration says is China’s unfair trade practices, and comes after both nations already announced tariffs on $34 billion of each other’s products.
President Donald Trump’s declaration that “trade wars are easy to win” will now be put to the test—China responded Wednesday saying it would be forced to retaliate. Regardless of the outcome, U.S. shoppers are poised to be losers, despite assurances from the administration that the new tariffs take into account the potential impact on consumers.
Consumers and business in crosshairs
“The president has broken his promise to bring ‘maximum pain on China, minimum pain on consumers,’ and American families are the ones being punished,” said Hun Quach, vice president of international trade for the Retail Industry Leaders Association. “Consumers, businesses and the American jobs dependent on trade are left in the crosshairs of an escalating global trade war.”
The new list of products subject to duties has been expanded to target categories such as sporting goods, mattresses, some apparel items and furniture. The wider net will capture more products from Chinese factories with deep links to the global supply chain. Li & Fung Ltd., the world’s largest supplier of consumer goods, sources products for retailers including Walmart Inc., No. 3 in the Internet Retailer 2018 Top 1000 and Macy’s Inc. (No. 6). A representative for Li & Fung couldn’t immediately comment on the impact to the company.
On the ground in China, companies are bracing for the pain. Guangzhou Hongye Import & Export Co. sends human hair and wigs to the U.S., accounting for about half of its business. Owner Yang Huasong says customers will now likely switch to sourcing from Myanmar, India or other Southeast Asian countries.
“A 10% tariff might not be a lot, but what customers will feel is that it’s too unstable to keep sourcing from us,” he said. “So business will keep getting worse and worse.”
The latest tariffs will force other companies to continue shifting away from the U.S. A sales representative at seafood exporter Taizhou Tianhe Aquatic Products Co. said the company has been shipping lobsters to the U.S., but is increasingly diversifying to Europe, Australia and New Zealand. In addition, the company is targeting local customers.
“We discovered there is growing demand in the home market and better profitability than selling to the U.S.,” she said.
Some major consumer segments managed to avoid the list, including footwear, toys, mobile phones and other household electronics. However, many companies in those categories aren’t feeling immune from the dispute, and are expecting an indirect impact.
“This is the next shot in the trade war with China that we started,” said Matt Priest, president of the Footwear Distributors & Retailers of America. “We’re all caught in the middle.”
At ground level, one retailer is taking a wait-and-see approach. “We don’t have a fully formed opinion, as the situation is still unfolding,” said Shawn Gold, corporate marketing officer, TechStyle Fashion Group, which includes Fabletics and ShoeDazzle. “And we produce clothing in more than eight countries around the world, so we’re not entirely dependent on China. That said, we have mapped out contingency plans.”
To argue their case against tariffs, U.S. consumer companies’ playbook has included pointing to higher costs for everyday goods, while laying the blame at the president’s feet—the American Apparel and Footwear Association has dubbed the tariffs the “Trump tax.” Industry groups have also highlighted the duties’ potential to derail U.S. economic growth.
The new duties are “a reckless strategy that will boomerang back to harm U.S. families and workers,” said David French, the National Retail Federation’s senior vice president for government relations. “Tariffs on such a broad scope of products make it inconceivable that American consumers will dodge this tax increase as prices of everyday products will be forced to rise.”
The tariffs could take effect after public consultations end on Aug. 30, according to a statement from the U.S. Trade Representative’s office Tuesday.
The downside to the economy is stark, said UBS Securities economist Robert Martin.
“We expect this will have a meaningful impact on U.S. consumer inflation as well as a meaningful drag on U.S. Gross Domestic Product growth,” he said, citing the Chinese government’s pledge to retaliate against new U.S. duties. “China is by far the largest provider of consumer products to the U.S.”