The State of The Trade War: Tariffs and What Comes Next
Date: Thursday, February 7, 2019
Source: Sourcing Journal
The impending March 1 deadline for a trade deal with China is fast approaching, but so far the talks between the U.S. and its current trade nemesis have been slow-going.
Agreeing to hold off on any new tariffs for a 90-day period to allow for less-strained talks, the U.S. and China are supposed to find some common ground on things like the trade deficit—President Trumpwants China to buy more Made in USA products—and issues surrounding forced technology transfer and intellectual property.
If the talks come up with no deal, 10 percent tariffs on $200 billion worth of U.S.-bound Chinese goods could become 25 percent tariffs. The fear, according to United States Fashion Industry Association (USFIA) president Julia K. Hughes, who spoke on the topic at a Sourcing at Magic seminar Tuesday, is that a failure to agree on a deal could see Trump could opt to put tariffs on all remaining imports from China, drawing apparel, textiles and footwear into the fray, though they’ve so far been largely spared.
Already, things like patent leather, leather handbags, leather apparel, wool yarn and cotton are subject to the tariffs, and the industry has suffered the consequences of the higher costs. With tariffs spreading further across the sector, hitting each thing the U.S. brings in from China, ramifications could range from reduced sales at retail to a wholesale redraw of the sourcing map as companies look to lessen the blow.
“Nothing has triggered the amount of phone calls from customers like the 301 tariffs,” Jim Schwartz, president and CEO of MGF Sourcing said during the seminar. MGF Sourcing, headquartered in Columbus, Ohio, is one of the largest global supply chain service organizations, providing product to companies like J.Crew, Chico’s FAS and Abercrombie & Fitch. “The benefits of trade for our economy are huge—and the real people who are being punished by the tariffs are the end consumers.” Price increases for brands, retailers and manufacturers as a result of the tariffs, Schwartz explained, will lead to higher prices and fewer choices for consumers.
Schwartz said he’s seen an “array of responses” to the tariff increases, but the biggest response has been “let’s move,” as in, out of China.
“But this is not so easy, because we have a much more intricate, sophisticated supply chain” than in the days of quotas, Schwartz said.
Addressing trade and tariffs at Tuesday’s State of the Union address, Trump said “now our Treasury is receiving billions of dollars a month” thanks to the tariffs imposed on China and that he doesn’t blame China for “taking advantage of us,” rather, U.S. leaders are to blame.
“We are now working on a new trade deal with China,” Trump said without a nod to how the talks are going or how much progress has been made. “But it must include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs.”
The president also called on Congress to pass the United States reciprocal trade act, “so that if another country places an unfair tariff on an American product, we can charge them the exact same tariff on the same product that they sell to us.”
But Trump’s position on tariffs and trade with China isn’t resonating with those in the apparel industry who recognize what the real impacts are and will likely continue to be.
“The President began the State of the Union pointing to America’s unlimited potential,” said American Apparel & Footwear Association (AAFA) president and CEO Rick Helfenbein in a statement after the address. “The continued touting of tariffs and their impact on the American economy is somewhat misleading and potentially destructive. The end may never justify the means.”
Continuing, he said, “The tariffs on $250 billion worth of U.S. imports from China are adding dollars to the government’s coffers–however this money is not being paid by China, but rather is paid by hardworking American families.” It’s not a tactic AAFA supports for negotiations on trade, nor is the Reciprocal Tariff Act something the organization is getting behind since, according to Helfenbein, it “would not protect American jobs but instead increase costs for Americans at the register.”