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Is a Tariff Rollback Coming in the US-China Trade War? The Week Ahead

Will he or won’t he? By now, any observer should have known to cast a wary eye on reports that the U.S. and China had agreed to a partial tariff roll back to get a “Phase One” trade agreement signed when there was not even one tweet—the preferred medium of choice—on the matter from President Trump.

The U.S. and China originally planned to sign a phase one deal this month as a means of partially resolving the protracted trade war.

That’s now up in the air because the APEC Summit in Chile, where Trump and Chinese President Xi Jinping were expected to sign the deal, has been cancelled, due to a spasm of violence roiling the South American nation.

Despite the halting nature of the trade negotiations, some–like Blackstone Group’s CEO Stephen Schwarzman–believe that both countries have an incentive to forge a trade deal and that it will get done in due time.

And while Trump on Friday told reporters on the White House lawn before leaving for Georgia that he’s in no rush because the U.S. is “taking in billions of dollars,” that also could be a negotiating tactic to force a concession on some other matter.

If and when tariffs are lifted, that likely would be seen as a plus for the retail, apparel and footwear sectors.

Jefferies analyst Janine Stichter noted that a rollback would most likely mean the removal of the 15 percent List 4 tariffs on apparel and a hold on the List 4 tariffs that were set to start in December. She said that such a move “would be a tailwind for overall discretionary spending while removing an operational challenge for management teams.”

Stichter explained that retailers “who source heavily from China and have high exposure to direct imports (instead of third-party brands) should see the most benefit.” In the apparel group, companies with high exposure to China include Chico’s FAS, American Eagle Outfitters, Abercrombie & Fitch, Gap and Urban Outfitters. Among footwear firms, Steve Madden, Genesco and Boot Barn have supply chains entangled with the “world’s factory.”

Even though many companies have been able to move some operations out of China, the analyst said it has come “with a cost, including longer lead times, lumpy inventory, and lower labor productivity.”

Also benefiting from the rollback will be consumers. If tariffs are removed and retailers either don’t have to raise prices or can adjust previous price increases, doing so would increase consumers’ disposable income, Stichter explained.

Now it’s just a matter of watching and waiting to see what happens next.