The trade war between the United States and China has reached a new tipping point as President Donald Trump today made good on his threats to hike tariffs on $200 billion in Chinese imports.
The U.S. today raised tariffs from 10% to 25% on those billions in products — which do not yet include footwear — after months of talks with Beijing failed to yield the resolution some had anticipated this week. China, meanwhile, has swiftly responded, promising to take its own countermeasures. (New tariffs currently impact handbags, some apparel and accessories as well as other consumer goods.)
“Our industry watched years of supply chain work for the American consumer turn back to rags: As an industry, we cannot survive a 25% tariff on top of the tariffs that we already pay,” said Rick Helfenbein, president of the American Apparel and Footwear Association. “It’s just not sustainable for a group that is 6% of all imports and already pays 51% of all duties collected. Prices at retail will rise, sales will drop, and jobs will be lost.”
Although footwear continues to dodge a direct hit in the recent waves of tariffs crossfire, Matt Priest, president and CEO of the Footwear Distributors and Retailers of America, said the sector is already among the most heavily taxed and will likely feel the impact of inflation across consumer goods. (The FDRA estimates that 99% of footwear sold in the U.S. is imported from other countries such as China and Vietnam, with footwear tariffs averaging 11% but reaching upwards of 48% and 67% on certain footwear types.)
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“[Retailers] are all competing for consumers’ disposable income, so if prices on other products are driven up, that’s going to take away discretionary income and shrink the pie for everyone,” Priest said. “Anytime there’s inflation across the consumer goods market, it will impact what people will spend on footwear whether we have an additional duty in place or not.”
Still, Priest notes that there is a chance the current wave of tariff increases — the third tranche Trump has implemented said initiating the China trade dispute last year — has an important caveat that could leave some wiggle room for those directly affected.
“They have implemented this tariff increase, but as long as you export your product out of China prior to 12:01 this morning, you’re not included,” Priest said. “Anything on the water and on its way here is still at that [initial] 10% level. What that does is, it gives us until about June 1 to get that product in and still hit that 10%.”
More importantly, he added, “It also gives time to negotiate an outcome and [a potential] draw back [so that no additional] products are hit by the 25%.”
The U.S. is continuing its talks with Chinese negotiators today, and Priest said that although “Trump’s threats, so far, have not been empty,” he sees a chance for a change in direction.
“One of president’s main talking points has been the economy — and the stock market continues to take a hit because of this,” said Priest. “It doesn’t have to take a miracle for these two [governments] to come together and [resolve this]. I think there’s a desire from both sides to figure this out.”
It has been a sea of red across U.S. markets since the opening bell this morning. As of 11:45 a.m. ET, the Dow Jones Industrial Average remained in hole 314 points to 25,514. The S&P 500 shed about 41 points to 2,830, and the Nasdaq gave away 145 points to land at 7,762.
The U.S. trade deficit in goods with China rose to $419.2 billion in 2018, up from $375.5 billion in 2017, according to a Commerce Department report. The deficit fell 3.4% to $49.4 billion in February, the lowest level since June 2018.
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