Trade war threatening to ruin Christmas for retailers

NEW YORK: It may only be July, but Christmas is fast-approaching for US retailers — and the threat of an escalating trade war with China has industries that have so far been spared increasingly worried their goods will be next on the naughty list.

President Donald Trump’s threat to slap tariffs on at least another US$200bil in goods from China – on top of the US$34 billion that went into effect yesterday – are ramping up fears that the all-important holiday-shopping season will be a casualty in the battle with America’s largest trading partner.

“Retailers have already made the buying decisions for what will be on the store shelves in the fall for Christmas holidays,” said David French, senior vice-president of government relations at the National Retail Federation.

If items aren’t imported before any possible tariffs go into effect, it will lead to “higher prices, a cut into consumer spending and a cut into consumer confidence – and we are very concerned about it.”

The Trump administration has so far made good on its promise to keep consumer goods off the initial round of tariffs, with the 25% levy on US$34bil of imports that came into effect focused on machinery. But if a new trade agreement isn’t reached, Trump has threatened to add a 10% tariff on an additional US$200bil of Chinese-made goods, potentially doubling that to as much as US$400bil in the event of Chinese retaliation. That would capture about 80% of all Chinese imports and ensure some sneakers, clothing, smartphones and even toys would be targeted.

“It creates a lot of uncertainty for everybody,” said Gary Atkinson, chief executive officer of Fort Lauderdale, Florida-based Singing Machine Co, which sources 100% of its karaoke machines and other gear from China.

“Hopefully, our product line never shows up on one of those list of tariffs.”

But if it does, the small publicly traded company would go down the same path that thousands of others have since Trump began enacting tariffs on other countries like Mexico and Canada in a push to reduce America’s trade deficit.

Atkinson says he’d likely have to raise prices, which would decrease demand – a big risk during the critical holiday shopping season. That would cause the company to place fewer orders from its Chinese suppliers, which would in turn hurt them, too.

“It would have a trickling effect all the way down,” Atkinson said. — Bloomberg

One major issue is that supply chains can’t be moved overnight, especially for a retail sector that tends to place orders months before items arrive in stores. US companies have spent years forging business relationships overseas and have come to rely on the expertise and reliability of Chinese factories. In the toy industry, there are few options outside of China, especially with more complicated items.

“We tried Vietnam and Indonesia, and they don’t have the infrastructure the Chinese do,” said Isaac Larian, CEO of toymaker MGA Entertainment Inc. “The toy business is dependent on the Chinese, and I don’t see that changing.” — Bloomberg

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