Here’s How the US-China Trade War Truce Will Affect Retailers

Retailers are temporarily in the clear after the United States and China suspended trade hostilities for 90 days following the G20 summit over the weekend in Buenos Aires, Argentina.

The 25 percent hike in tariffs that President Donald Trump had threatened on $200 billion worth of Chinese goods will not go into effect on Jan. 1 as originally planned. Instead, the 10 percent tariff will remain in place as the two countries begin negotiations that also address China’s alleged forced technology transfers and cybercrimes.

Despite the favorable decision, the fashion industry shouldn’t hold its breath. In an interview with FN prior to the announcement of the financial ceasefire, American Apparel & Footwear Association executive vice president Stephen Lamar said, “Even if you have a standstill or truce, as they’re calling it, that doesn’t do anything to remove any of the underlying tariffs.”

According to the AAFA, 41 percent of apparel, 72 percent of footwear and 84 percent of accessories sold in the U.S. comes from China. The most recent tranche of tariffs already affects clothing and accessories, including handbags and wallets, while the fourth set, which would hit $257 billion in goods, “can affect footwear pretty dramatically,” Lamar said.

With the levies encompassing a wide variety of consumer products, it’s expected that retailers would have to raise prices to accommodate soaring import costs. (Walmart and J.C. Penney have already expressed concerns.)

“It’s very difficult to see how [mounting tariffs] don’t negatively impact all Americans in every walk of life,” Footwear Distributors & Retailers of America president and CEO Matt Priest previously told FN. “The president claimed that trade wars are easy to win, but what our industry has always known is coming true: Trade wars are costly, unnecessary and do harm to the American economy.”

A number of companies, including Steve Madden, have also considered relocating their factories from China, which could potentially disrupt their supply chains as well as affect shipping times and sourcing strategies.

“Companies will be looking to preserve their strength,” said AAFA president and CEO Rick Helfenbein. “They have loved working in China all these years, and they’re going to have to rearrange the dynamic or it will be disastrous.”

If Trump and Chinese President Xi Jinping fail to reach an agreement on or before the April 1 deadline, the U.S. announced it would move forward with the 25 percent tariff rate. In order to stay out of the weeds, experts say companies with significant business operations in China must be prepared with either an exit or reduction plan — particularly as some indicate the effects of Trump’s trade war could reverberate for the next decade or so.

“We know on trade, [Trump’s] a man of his word; he says he’s going to do something, and he does it,” Lamar said. “One of the ways to eliminate uncertainty is to hope for the best but assume the worst and plan for it.”

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