Tariffs Are Trending, But Does the Industry Grasp the Implications of Trump 2.0?
“Tariff” has become the hottest word in the American lexicon since Donald Trump secured a decisive victory in the presidential election two weeks ago. But for many consumers and even industry insiders, the implications of the proposed taxes on foreign-made products remain elusive.
“The president-elect did say that ‘tariffs’ is the most beautiful word in English language—but a lot of…people around the world are looking to understand what tariffs are,” American Apparel and Footwear Association (AAFA) president and CEO Steve Lamar said last week at Sourcing Journal’s Fall Summit in New York City.
Throughout his campaign, Trump promised to increase existing Section 301 duties on China-made goods to 60 percent. He also floated a universal baseline tariff of 10 to 20 percent on products from anywhere in the world.
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While the former president has likened tariffs to a tax on foreign producers, the reality is much more nuanced.
“The experience of Trump 1.0 is that the President really means what he says when it comes to trade; he feels that he’s a very deep expert in these issues,” he added. “He really likes the power of tariffs. It’s the simplicity of them and their ability to achieve some of the outcomes that he likes.”
Those outcomes include negotiating leverage with other nations, but the unintended—and inevitable—consequences, in Lamar’s estimation, also include higher prices at retail.
“I think there’s a lot of questions about ‘how’ and ‘when’, but I don’t really think there’s so much of a question about ‘if’,” Lamar said, indicating that he believes these proposed policies are more than campaign bluster—and that’s something shoppers should be mindful of moving forward.
Josh Teitelbaum, senior counsel for international trade policy at Washington, D.C. law firm Akin-Gump, said the industry should also be formulating a plan for how to deal with new taxes on goods it’s sourcing from overseas.
He told an audience including brands and retailers that there are advantages and disadvantages to the scenario, given that many now know what to expect from Trump trade policy. Because this isn’t anyone’s first rodeo with a Trump administration, they should be charting next steps before he takes office.
“We’ve been through this before, and so how do you prepare? You have to get your operations in order, you have to get your advocacy arguments in order,” he said.
When the first Trump administration implemented Section 301 duties of 7.5 percent to 25 percent on products from China, brands learned how to file for exclusions, how to answer questions about whether they’d tried sourcing from alternative markets, and whether certain exclusions on inputs or materials might allow them to bring manufacturing back to the U.S.
There’s an upside to understanding that process, he believes. “Those are the kinds of questions that we know they may be asking,” Teitelbaum said.
But, “The disadvantage of the second Trump term is that they’ll come to you and say, ‘It’s been six years. What has taken you so long to get out of China?’”
According to Lamar, kicking the China sourcing habit is easier said than done; it may even be impossible. And he questions the validity of seeking to sever ties altogether.
“China continues to be an important sourcing partner, an important market. I don’t know that that fundamentally changes,” he said. “I do think that we’re going to go through a period where, in addition to trading goods and services, we’re going to be trading tariffs and insults.”
Should president-elect Trump succeed in raising tariffs on China-made products, American industries that sell products and services into the Chinese market should expect to see retaliatory tariffs. “This isn’t going to be a one-sided conversation,” Lamar added. “I think we’re in for a period of escalation.”
Teitelbaum demonstrated that there are two sides to the conscious-decoupling-from-China argument.
“There’s one school of thought that says, ‘If you deeply de risk these two economies, it accelerates China’s self-sufficiency,’” he explained. “If the U.S. government says you can’t sell certain inputs to China to be incorporated into advanced technology, then yes, that will slow down or even degrade China’s capabilities to build an iPhone or some other product with military end use. But at the same time, you are bringing closer—you are accelerating—the day that China is able to make that on their own.”
In the textiles and apparel sector, pulling away from China could lead to a situation wherein China works harder to cultivate export relationships in developing markets where the U.S. has “an interest in trying to have a stronger presence from a geopolitical perspective,” Teitelbaum said—places like Africa and Latin America. “And that harms U.S. interests,” he said.
Lamar lamented the foot-dragging of the current administration when it comes to facilitating stronger trade with other nations—running down the clock on expiring free trade agreements like the Africa Growth and Opportunity Act (AGOA), for example, and failing to establish new trade preference programs or frameworks for bilateral trade.
With new global tariffs possibly on the way, Lamar said he worries that everyone—except possibly China—will lose.
If the U.S. levies duties on the rest of the world, it will make it less advantageous for U.S. companies to leave China, he believes. And those tariffs could convince other nations “that we’re not necessarily good trading partners ourselves,” he said. “Someone’s going to need to step in and fill that void, and voila, here comes China.”
“If you look at this holistically, we’re starting the conversation about de-risking and diversifying away from China, but we’re not finishing that conversation,” by taking the actions needed to provide viable alternatives, he added.
