The U.S. Trade Representative last week extended the hearings on the final tranche of tariffs planned for Chinese imports through June 25 from just June 17, a move that could ease some of the trade tensions at the upcoming G-20 meeting in Osaka on June 28-29 where the expectation is that U.S. President Trump and China President Xi are expected to meet.
President Trump has indicated that he will make a decision on the tariffs about two weeks after an expected meeting with President Xi. There is also a mandatory seven-day post-chearing rebuttal period before any decision on tariffs can be announced. According UBS economist Seth Carpenter on Monday, “This change makes July 1 the new focal point for the announcement (if any) of the full escalation of tariffs.”
Carpenter said the removal of trade tensions could increase the odds that “negotiations resume, progress, and after many months, reach some sort of deal to ward off escalation.” He noted that the delay also would likely give an incentive for the Federal Reserve to “wait to see that tariffs actually materialize and actually affect the real economy before taking action.”
There’s been significant market volatility as stocks sold off and then rebounded in the past two weeks after investors were banking that the Federal Reserve would move with an interest rate cut to help keep the economy in growth mode. The Fed members have their Federal Open Market Committee meeting Tuesday and Wednesday to discuss policy action.
Meanwhile, another UBS economist Alan Detmeister said on Monday that if the remaining tranche were to go into effect over the next few weeks, it could raise consumer prices by 33 basis points by the middle of next year, or one third of 1 percent. That in turn has the economist projecting a 12-month change in the core PCE inflation to hit 2.4 percent in spring 2020, “a strong upward surge from its current 1.6 percent rate.”
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PCE represents the personal consumption expenditures. As part of the price index, it measures prices paid by consumers, excluding food and energy prices, to indicate inflation trends.
But Detmeister did note that the inflation rate would be a temporary one-time shock. He reasoned that the rate would be pushed down by a higher unemployment rate and expected weaker economy that would occur if the tariffs are put in place. That would lower the core PCE inflation rate to 1.9 percent by 2021. Telephones, games, toys and hobbies account for about 30 percent of the value of the items on the tranche 4 tariff lists, with apparel, computers and tablets, and household supplies rounding out the top categories that are expected to contribute to the rise in consumer prices, the economist said.
Even if firms can source alternate suppliers outside of China to avoid the tariffs, that wouldn’t necessarily translate into savings. Detmeister noted that the new manufacturers could also increase their prices, which is what happened last year when companies found substitute items following the tariffs on washing machines.
According to Detmeister, the imported value of apparel from China is about $28.7 billion, or a 9.3 percent share of the PCE. For footwear, that value is $13.1 billion, or 15.9 percent, while jewelry and watches are $4.2 billion, or 5.1 percent.
Meanwhile, the U.S. Trade Representative’s hearings on the proposed retaliatory tariff–25 perc ent on $300 billion of Chinese imports not yet taxed–began Monday morning, with many companies and trade organizations planning to testify over the next seven days. Testimony is expected both in favor of and against the tariff’s implementation. Both sides see “America First” as the key mantra, but end up on different sides of the fence depending on one’s perspective.
National Council of Textile Organizations president and chief executive officer Kim Glas is slated to testify on June 20, while NCTO member Parkdale Mills saw Daniel Nation, director of government relations, testify on Monday. NCTO, for the most part, is in favor of the tariff.
In prepared remarks for the USTR hearing, Nation said Parkdale supported the proposed tariff list in the U.S.’s case against China, given the Asian nation’s position on “theft of intellectual property.”
He noted in his remarks, “Including finished textile and apparel product on the 301 retaliation list would greatly enhance the administrations’ leverage in the ongoing negotiations and help redirect trade in this sector to the Western Hemisphere.” NCTO’s position is to re-shore production to the U.S., although it is pushing for certain exceptions, such as chemicals, dyes, and machinery and other manufacturing inputs not made in the U.S.
In contrast, the American Apparel and Footwear Association is seeking a halt to the impending imposition of the planned tariffs. Representing designers, manufacturers, wholesalers, retailers, exporters and importers, the organization and its members sent President Trump a letter Monday indicating that all its members would be “harmed by this action,” which also will mean higher prices for U.S. consumers. The letter also said the fashion industry already bears a disproportionate tariff burden, paying upwards of $18 billion in tariffs in 2018, even though it accounts for just 6 percent of all U.S. imports.
AAFA president and chief executive officer Rick Helfenbein, in his testimony Monday afternoon, reiterated the economic burden on U.S. consumers and manufacturers: “Any tariff on these consumer goods–they are used by every American–will end up hurting U.S. consumers, in addition to the companies and workers who support them. We expect prices to go up, sales to go down, and jobs to be lost.”