So just exactly where are we on the tariff issue? There may be a truce in the trade war between the U.S. and China, but how long that will last or whether it will actually result in a successful negotiation between the two countries is debatable.
On the horizon now is the threat of tariffs on goods from the European Union. This isn’t exactly new, but the Office of U.S. Trade Representative on Monday said it is seeking public comment on a proposal for an additional 89 categories of goods.
Tariffs: The truce between the U.S. and China, which delays the imposition of a new 25 percent tariff on $300 billion of Chinese imports, is just one week old, but the two countries still appear to be far apart in terms of necessary concessions for getting a deal done. News reports from China–citing Ministry of Commerce spokesman Gao Feng–indicate that a condition for any deal to take place would require the U.S. to do away with the existing 25 percent tariff levied on $250 billion of Chinese imports. Those tariffs will be a year-old on Saturday, although the initial levy a year ago was just 10 percent. In contrast, U.S. President Donald Trump has said he wants some kind of tariff in place for a period of time beyond the signing of an agreed upon resolution to ensure China’s compliance.
Could the tough talk on both sides be chalked up to “positioning,” the stance each side takes in negotiations to get concessions to move discussions further along? Perhaps, but a key point for the U.S. remains the protection of intellectual property assets, and that means keeping some form of tariff in place to make sure China adheres to an agreement isn’t something that will be easily given up.
As for the proposed EU tariffs noted in April, those preliminary items on the original list include handbags over $20; sweaters and vests made from wool, cashmere from Kashmir goats, cotton and certain man-made fibers, and apparel items. The latter includes certain products in outerwear, men’s and boys’ suits and women’s and girls’ cotton pajamas and nightgowns. According to the USTR in Monday’s notice for public comment, the supplemental list adds 89 tariff categories–that include certain cheese, liquor and food items–that have a trade value of $4 billion. When added to the original list proposed on April 12, the combined total has a trade value of $21 billion. These threatened tariffs are connected to a dispute over rival aircraft subsidies involving American firm Boeing Co. and European firm Airbus SE.
So what does all this mean?
For apparel firms and retailers, the trade war with China doesn’t appear to be going away anytime soon, which means there’s a risk that the delayed tariffs could be implemented on relatively short notice. As for the proposed tariffs on EU imports, the dispute over aircraft subsidies has been ongoing for years. And by now, whether on imports from China, the EU or even Mexico a few weeks back, it shouldn’t be a surprise that tariff is the buzzword coming from the Trump administration. That’s because tariffs were once a way to maximize economic leverage, except that Trump also believes they are “profitable.”
While economists and political pundits can debate that point, what is clear is that if new tariffs are implemented, consumers likely will see higher costs across the board and, in turn, have fewer dollars available for discretionary spending. And that’s not good news for either apparel firms or retailers, particularly as they head into the holiday season.
Levi Strauss: It’s the start of earnings fever again on Wall Street for retail and apparel trackers, and Levi & Strauss Co. kicks off the season with its report on second-quarter results on Tuesday.
Amazon Prime Day: In past years, much of the back-to-school sales for apparel typically occur beginning in mid-August when students and parents begin preparing for the new school year. For retailers and many apparel firms, August is the start of their third quarter. This year, the BTS selling season for many companies will start in July, thanks to Amazon.com. That’s because Amazon’s mid-summer Prime Day–think Cyber Monday deals in July–is scheduled over two days, July 15 and 16, and retailers are planning key promotional specials on school-related items. Those promotions could easily shift some BTS sales into the second quarter of the retail calendar.