Trump's China Tariff Talk Rightly Worries Retailers
When you consider what we know so far about the tariffs the Trump administration has recently considered imposing on Chinese goods, you might be tempted to think the retail industry shouldn't be in panic mode.
Yes, items such as televisions and dishwashers are on the list of products the U.S. plans to tax. But, so far at least, key products such as clothing, shoes and toys have been spared; instead, the Trump administration is focusing more heavily on industrial equipment and other items that don't line the shelves of your local Walmart Inc. or Target Corp. store. 1
Retailers are still deeply concerned, though -- and rightly so -- because it isn't just the specter of tariffs that threatens them. They're also challenged by the cloud of uncertainty that this back-and-forth between Washington and Beijing has created.
Retailers have to make decisions about what products to buy long before those goods hit store shelves. Soon, they're going to have to place orders for merchandise for the crucial holiday season. It will be exceedingly difficult for them to do that efficiently when they don't know whether certain products will be slapped with major new taxes, and thus don't have a clear sense of what they'll need to charge shoppers to sell those items profitably.
And even if they wanted to defensively change their supply chain to rely less on China, that's not something retailers can do overnight, or easily. Take the apparel business: China is still the U.S.'s top source for imported clothing; second place, Vietnam, remains far behind. It would be difficult enough just finding sufficient capacity in other countries to fill the demand.
No wonder, then, that the retail industry has come out swinging against the tariffs, with major trade groups such as the National Retail Federation and the Retail Industry Leaders Association saying that they amount to a tax on consumers. They argue that Americans will end up facing higher prices on store shelves as the global retail supply chain is forced to figure out how to shoulder the tariffs.
It’s a similar strategy to the one the industry deployed when it worked last year to get Washington to back away from a border-adjustment tax, or BAT, a provision in a Republican tax proposal that would have effectively created a new levy on imports. The idea was abandoned long before lawmakers signed a tax overhaul into law in December, in part thanks to pressure from retailers.
But if retailers really want to stop tariffs, I suspect they are going to have to do more than dust off the anti-BAT playbook.
Remember, the BAT was an idea that was trumpeted by Republican members of Congress. When retailers wanted it spiked, that was the primary audience they needed to sway, and they were able to successfully plead their case by invoking the pressure that would be put on constituents' pocketbooks. These tariffs, however, were cooked up by President Trump. He will likely require a different set of arguments, perhaps more sharply laid out in terms of wins and losses, and how they would reflect on him.
I know Trump hasn’t bragged much about the stock market lately, especially since major indexes have seen some grisly drops recent weeks. But we know from his earlier tweets and remarks that he sees the performance of the stock market as an important measure of prosperity (not to mention his own performance).
Perhaps, then, retailers could bring Trump around by hammering home the ways these tariffs could hurt their profitability, and how that, in turn, would spook investors and send stock prices tumbling. They also might have a better shot at getting Trump's attention if they tailor their messaging with his ego in mind. Imagine, for example, if they ran TV and digital ads dubbing this suite of tariffs the “Trump Tax.” Maybe that would get under the skin of a leader who cares deeply about his personal brand.
This isn’t to say that retailers shouldn’t also make the argument about what impact a trade war could have on consumers. But Trump isn't the kind of policymaker they’re used to pleading with, and I don’t think the usual approaches -- however rational they may be -- are going to be enough.
And besides, White House economic adviser Larry Kudlow has said that the announced tariffs are merely proposals, hinting there's a possibility they never actually go into effect.
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Beth Williams at firstname.lastname@example.org