Donald Trump orders US companies to seek alternatives to operate in China, hours after Beijing announced new trade sanctions. Analyst Amanda DeBusk says the situation is "very serious", but China's tariff is not surprising. (August 23)
So far, the American shopper has been a bit involved in President Donald Trump's trade war with China.
As of Sunday, American households are at the center of the escalating struggle.
It was then a 15% US tariff is slated to come into effect, essentially a tax on some of the $ 550 billion in Chinese imports that the White House has not already taxed. Part of the $ 300 billion in shipments affected by the 15% tariff will hit Sunday, and the remainder on December 15.
Here's the concern: Around 60% of the $ 300 billion – which includes around 3,800 items – is made up of finished consumer products, compared to 30% of the previous duties on Chinese imports.
In crosshairs Sunday, there are many types of clothing – including suits, jackets, pants, shorts, shirts and outerwear – as well as outerwear TV , diapers, coffee, whiskey, meat, cheeses and textbooks. Interviews with clothing retailers, a TV and appliance store and a household goods manufacturer reveal growing concern after Trump slashed tariffs last Friday.
But don't expect instant sticker stickers when you walk into your favorite big box next week. First, most of the goods do not come from China, although it may seem so. China supplies about 26% of Walmart's goods and 34% of Target's, according to UBS. In addition, retailers, manufacturers and distributors generally keep a few weeks of merchandise on hand, and many are likely to do even more to evade customs, says David French, senior vice president of government relations at the National Retail Federation.
In some cases, manufacturers respond by keeping prices stable, but selling products in smaller packages or making them with lower-quality materials, says NRF's French and some dealers.
Tariffs for many clothing imported from China enter into force on Sunday. (Photo: Getty Images)
Large chains ordering in bulk are better equipped to absorb some of the fees by accepting narrower profit margins, persuading their suppliers to reduce costs, spread the tariff on more products and look for alternative suppliers in other countries.
Nevertheless, such strategies can dull the effect of, say, a 10% tariff, several large merchants have said that at least part of a 25% tariff is likely to be felt by buyers.
The 15% tax rate that goes on Sunday may fall somewhere in between, with some prices increasing modestly, though most retailers will probably do everything possible to avoid holiday season increases, French says.
"The supply chain can only absorb so much, and companies will have no choice but to eventually raise prices," he says. French expects Trump to make good on his threat to raise the tariff rate to 25% by next year, eventually pushing retail prices wide, hampering a US-China deal.
Small retailers who are most at risk
Many small stores and their customers are likely to feel a greater impact, possibly within a few weeks, and some have already raised prices, several merchants said.
In Rehoboth Beach, Delaware, about 80% of the items in Carlton's men's and women's clothing are from China, says store owner Trey Kraus. In anticipation of a 25% tariff, manufacturers supplying the 59-year-old store began modestly to raise suggested retail prices late last year for spring clothing. They have also increased prices further on newly arrived fall selections to avoid a sudden increase when the tariff hits.
As a result, premium mens pants that sold for $ 125 a year ago now retail for $ 149 – a price that includes tariff and some mark-up, as well as a little modest inflation – with shirts, dresses and other products undergoing similar hiking. Prices for some goods have remained largely stable, but manufacturers use artificial instead of man-made fiber or less cotton, says Kraus.
Many small shops are already feeling the pain of the September 1st duty. About 80% of the items in Carlton's men's and women's clothing in Rehoboth Beach, Delaware, are from China, says store owner Trey Kraus. In anticipation of a 25% tariff, manufacturers supplying the 59-year-old store began modestly to raise suggested retail prices late last year for spring clothing, and have increased prices further on newly arrived fall choices to avoid a sudden increase when the tariff hits. (Photo: Handout)
Sales have fallen somewhat as a result of the higher price tags, says Kraus.
"It is frustrating with all the time and money and effort you put into it," he says. Noting that he and his wife are in the store seven days a week and expected to be rewarded with healthy profits and a comfortable lifestyle, he added, "It's not happening."
Other clothing retailers and manufacturers are rolling out new styles to justify the higher prices. Vivacity Sportswear makes women's clothing at its own American factories and sells the products in a store in San Diego and online. But it has had a 25% tariff for fabrics, which it imports from China, forcing 5% to 10% higher retail prices, says owner Vivian Sayward. That duty is set to rise to 30% on October 1, a shock that Sayward says will affect her next year.
To give customers something extra for the higher price, "You can change the fabric, the style," says Sayward. "Sometimes you can add a pocket."
Technology products rely on China
Yedi Houseware, a Los Angeles-based product designer and manufacturer, has been hit with a 25% rate on the oil-free fryers it sources from China, with the company taking up half the increase and providing half to consumers, says Vice President Bobby Djavaheri. Despite the higher price, the fryer has been a sensation in the midst of the healthy food craze, contributing to quadrupling sales this year.
But the narrower profits led Djavaheri to plan to expand a warehouse and add 10 employees to his staff of around 20. He doesn't say anything Countries other than China have expertise and production networks to put together the complex products. The rate on the deep fryers will increase to 30% in October, lowering the retail price a little higher and further shrinking Djavaheri's profits.
A 15% tariff on most of the rest of his products – including pressure and precision boilers priced at about $ 110 on average – takes effect December 15, forcing him to absorb half of the charge and transfer half to the customers. To minimize the impact, Djavaheri has planned several million-dollar extra products to arrive from China before mid-December, tying up valuable capital, but providing a warehouse that will last until the end of January. If Trump cancels the December tariffs, he says, "There is no turning back."
And if the fee rises to 25%, Djavaheri says his company, Yedidia, which was launched in 1979, will be closed down.
"Why are you being punished for something you have no control over?" He says. “This has been busy every day of my life for the past year. This is all I have to do. ”
In Lincoln, Nebraska, Schaeffer & # 39; s, which sells TVs and appliances, had to raise the prices of large appliances from 5 to 7% early this year after a 25% duty on washing machines went into effect in in early 2018, says store owner Ron Romero. Sales continued to grow, he says, noting that Lincoln has a vibrant economy, with unemployment of 2.8%. And appliances, he says, are a necessity. But he worries that a 15% price increase on TV in the coming weeks could hurt revenues.
"People want to do without TV," Romero says, especially if they have more than one set.
Trump intensified the trade war late Friday by pushing Chinese import tariffs more forcefully than planned, responding to a new set of tasks announced by China on the same day. He tweeted at the time that September 1, the fee would be 15% instead of 10% on mostly consumer-targeted products. The rest of the $ 300 billion in merchandise – including cell phones, laptops, video game consoles and toys – will hit higher 15% tariffs in mid-December.
And an existing $ 250 billion tariff on Chinese goods – mostly industrial and intermediate items as well as items such as bags, luggage, hats and furniture – rose from 10% to 25% in May and will now climb to 30% 1. October.
All in all, a 25% tariff for $ 300 billion in Chinese imports would increase annual household costs by $ 1,000 on average, according to a recent study by JPMorgan Chase. And the total annual cost of the trade war, including a 25% tariff on all Chinese imports and related effects, would be $ 2,300 for a family of four, according to Trade Partnership, a consulting firm.
Large retailers can blow soft, first
Large chains are better positioned to dampen the impact, at least initially.
"We will continue to do everything we can to keep prices low," Walmart Finance Director Brett Biggs told reporters about a conference call in May. "However, higher tariffs will lead to higher prices, we believe, for our customers." In a government filing in late June, Walmart said a 25% tariff is likely to mean higher prices "on certain items."
At Washington's June hearings, Best Buy Chief Merchandising Officer Jason Bonfig said a rate of up to 25% "could be immediately transferred to the American consumer."
In an Aug. 14 interview with analysts, Macy & # 39 said ; CEO Jeff Gennette, "What We've Found There is no Customer Satisfaction for Price Increases. when it goes to 25%, you're dealing with a whole other set of dynamics that I wouldn't say we wouldn't need to raise prices. "
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