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New China Tariffs Are Coming and So Are The Non-Tariff Barriers, Experts Say

President Donald Trump’s next promised tranche of tariffs on China, targeting all remaining imports from the country, is coming.

And it’s not a matter of “if,” but “when,” trade experts said speaking at the Sourcing Journal Summit in New York Thursday.

“Tranche 4 is coming,” said Steve Lamar, executive vice president of the American Apparel and Footwear Association. “The president has, on multiple occasions, indicated that if the Chinese retaliate on the previous tranches, he will retaliate with the rest of trade … He’s promised this a number of times and the Chinese have retaliated, so it’s up to the president to decide if he’s going to carry through with that, and we believe that he will.”

What this means for the industry is that all apparel and footwear imports from China into the U.S. could face tariffs ranging from 10 percent to 25 percent, which could substantially alter the way companies approach sourcing in China.

The comments come following the most recent tranche of tariffs targeting $200 billion worth of China-originating goods, taking the total of Chinese-tariffed goods up to $250 billion. The latest round put 10 percent tariffs on the targeted goods, though Trump has plans in place to increase that number to 25 percent on Jan. 1, 2019. China has retaliated in both rounds of U.S. tariffs, evenly matching the initial $50 billion and then following up with another $60 billion last month, in line with those newly levied by the United States. China won’t be able to go dollar for dollar with the U.S., as it only imports roughly a quarter of what the U.S. takes in from China.

So far, the moves have already been substantially costly to an industry already footing the bill for the bulk of the United States’ collected duties.

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“We represent about half of the tariffs that are collected by the U.S. government every year,” Lamar said. “That translates to about $16-$17 billion a year.”

Just looking at the tariffs that have been levied this year, Lamar said the number is climbing at quite a clip. Roughly 20 days ago, he pegged the number at $3.7 billion, and 10 days ago it had reached $4.5 billion.

“It’s over $5.2-$5.3 billion at this point and rising quickly,” he said. “Obviously that number will increase … when the 10 percent tariffs on tranche 3 become 25 percent tariffs. And of course, it gets even higher when we learn the details of tranche 4. So the numbers are big and getting bigger.”

Where sourcing goes from here

With so many apparel brands and retailers steeped in China sourcing, and considering no other country can match China’s capabilities and capacity, the ramifications of this trade war are expected to run deep.

“When you look at the fact that China as an apparel manufacturing country globally represents 35 percent of all exported apparel, and if you look at the next eight countries in the world that are right behind it … those eight [collectively] represent 35 percent,” said Robert Sinclair, president of global supply chain, Global Brands Group, adding that it’s far easier said than done to abandon or considerably reduce sourcing in China. “If you’re going to face an additional 25 percent tariff in 2019, that’s going to have a massive impact on the cost structure. There’s only so much mitigation we can do.”

While PVH Corp. is planning to stay its sourcing course amid the uncertainty tariffs have brought on, the company’s VP of customs compliance & government relations, Maristella Iacobello, noted that it’s prepared for “aggressive action” as needed. For now, however, it’s simply been about trying to navigate what’s needed without really knowing what that is at all.

“In the past I was able to provide some sort of concrete information to the global supply chain team, but now I feel like I always caveat what I say with, ‘What I’m telling you now is going to be different in one hour. There’s no benchmark,” she said.

The bigger question, however, is: What is Trump striving for?

The president has said he won’t back down on tariffs until China makes “sufficient progress” in its trade relations with the U.S., but as Iacobello noted, there are no specifics on what China must do before Trump deems it sufficient.

“How do you work that way?” she posed.

To tariff, or to tariff

There seems to be no question among leaders in trade that the tariffs aren’t going anywhere anytime soon—and the reasons why are manifold.

Tariffs are a tactic likely designed to quell China’s plans to become an even greater global power, Sinclair said.

Looking at what China has been doing in a geopolitical context, with its One Belt, One Road initiative and its sizeable investment in Africa through wide-reaching infrastructure projects over the last 20 years, its Made in China 2025 technological push, the country is on the move—and that factor doesn’t sit well with everyone.

“I think the geopolitical ramifications of a lot of China initiatives are raising eyebrows,” Sinclair said, questioning whether the tariff tactic isn’t owed to trying to curb some of China’s growth.

If you ask Nicole Bivens Collinson, president of international trade and government relations for Sandler, Travis & Rosenberg, the answer may be yes.

“There’s a much bigger issue here,” she said. “It really is not about tariffs. That’s a way to get their attention. Because when you hit the pocket book, people pay attention.”

China has plans to rise that may not be in line with Trump’s plans, and the trade war is playing out as the battle between them. But no one wants to withdraw.

“I believe that [Chinese President] Xi Jinping is not going to back down, and I don’t believe the U.S. can back down,” Bivens Collinson said. “I think we’re stuck in this, I would say, 20 years. I don’t see any way out.”

Are non-tariff barriers looming too?

While China may soon run out of U.S. imports to tariff as there’s only so many U.S. goods that go into the country, it won’t run out of tools to hit back at the U.S.

“They are masters at non-tariff barriers,” Bivens Collinson warned. “Suddenly, if you have a facility that’s U.S.-owned, then you have licensing and certifications and inspections, and your inputs aren’t going to get there, and then when you get to the port you can’t get it out of the port. They can make your life a living hell.”