The potential for an all-out trade war with China and a
brewing one with our North American neighbors has contributed to retailers’
uncertainty in 2019. Major
retailers have pointed out that they are anticipating
a negative impact from the expected 25% tariffs placed on roughly $300 billion of Chinese goods,
which range from apparel and footwear to sporting goods and even agricultural
products. On top of that, the
National Retail Federation and other trade associations have been very
vocal in opposing the White House’s decision to implement the tariffs, stating
that they are harmful to U.S. retailers and consumers alike.
The RTP editorial
team discusses the potential impact of these tariffs, whether they are placed on
China, Mexico or Canada, and shares what retailers can do to mitigate potential
problems the tariffs could cause.
Adam Blair, Editor:
President Trump is bothered by illegal immigration on the Southern border. Set
aside for now whether this is a real problem for the U.S. or not, and let’s
consider the weapon he is using to deal with it: imposing escalating tariffs on
Mexican goods until their government does something (it’s never clearly defined
exactly what) to stop the flow of migrants through its country.
You’ve heard the expression “cutting off your nose to spite your face”? This is
putting a bullet in your brain to cure a headache. This is using a sledgehammer
to swat a fly — an operation that puts holes in the wall of your house while
letting the fly fly free. The NRF’s SVP for Government Relations David French
couldn’t be blunter, or more accurate: “The growing tariff bill paid by U.S.
businesses and consumers is adding up and will raise the cost of living for
American families. Forcing Americans to pay more for produce, electronics, auto
parts and clothes isn’t the answer to the nation’s immigration challenges.”
Glenn Taylor, Senior
Editor: Besides the actual price increases that will come as a result of
the tariffs, the next major impact appears to be in supply chain costs, which
will affect both the retailer and the manufacturer, according to Jason Furman,
who was President Obama’s chief economic adviser. Furman
told Vox that If a product is finished in Mexico and shipped to the U.S.
from there, but had mostly been produced elsewhere, then the tariff becomes a larger
burden on the manufacturer; if a product is 5% produced in Mexico and
now faces a 5% tariff, that’s equivalent to a 100% tax on the
Mexican production. This will hamper suppliers’ ability to move semi-finished
products back and forth across the border, potentially altering how supply
chains function between the two countries. I can’t imagine most retailers are
prepared for that kind of change given how fluid (and frankly, sudden) any
proposed USMCA (a.k.a. the “new NAFTA”) scenarios have been playing out.
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Bryan Wassel,
Associate Editor: A big problem
with tariffs is that, since they can be placed by the president unilaterally,
there is little recourse to fight them until the 2020 election. This means
that, barring some disastrous polling or dramatic
Congressional action, retailers won’t be able to expect relief for at least
another year. They also will be dealing with the fact that the levies will be
hitting shoppers in areas they may not expect — everyone expects avocados to rise in cost,
but customers may not be prepared for a price increase for jeans. The best path for retailers may be to
follow the strategy that many large companies have announced during quarterly
result calls: work with suppliers the best they can to mitigate the increases,
but fully acknowledge that some of the cost increase is going to fall on
customers’ shoulders. Hiding from the truth isn’t going to help anyone, but
coming forward and openly stating why this is happening might help generate the
pressure needed to have the tariffs lifted.
