Regardless of how Tuesday’s election shakes out and whether President Donald Trump decides suddenly that he’s nixing the China tariffs, the damage has already been done when it comes to driving up apparel prices.
While it’s almost certain—and already outlined by retailers like Walmart and Gap—that prices will go up in stores in light of the 10 percent tariffs already in place on certain imports from China tied to apparel and textile manufacturing, and even more certain still if the hike to 25 percent carries forward on Jan. 1, it may be equally likely that prices will rise regardless.
Speaking at a U.S.-China tariffs panel discussion hosted by IDB Bank in New York City Monday, Rick Helfenbein, president and CEO of the American Apparel & Footwear Association (AAFA) said, “If after the midterms tomorrow, if President Trump gets up Wednesday morning and says: ‘You know, this China thing, let’s call it off,’ prices will still go up because people are scared. And when people are scared they leave [places they’re sourcing, like China]. And when they leave, prices go up, so I think there’s no turning around at this point.”
While no small task to pull up stakes of a supply chain well-rooted in China, “a lot of companies,” according to Helfenbein, are “actively trying to get out” in order to minimize their China exposure in light of these continuously tenuous and strained relations.
Adding to that, Helfenbein said, “You’re seeing price increases just because of the scare tactics…and once people move, they really don’t come back.”
The acknowledgment is one that weighs heavily on American businesses, which in September alone spent 54 percent more in duties on imported goods in light of Trump’s tariffs and the resulting retaliations. And with tariffs still on the table for now, the burden these businesses bear will have ramifications on costs throughout the supply chain.
“I don’t think that the retailers, for all of the leverage that they have, will be able to avoid big price increases,” Harold M. Grunfeld, partner at customs and trade law firm Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP. “They may force some of it back to their vendors—and that would be part of the natural process—and the vendors will try to force some of it back to their factories. But at the end of the day, there will be increased prices whether it happens in the first tranche or the second…at the end of the day this will happen and prices will go up at retail.”
The bigger question according to Grunfeld, however, is “whether retail prices will keystone the duty increases and their retail selling prices, in which case their inflationary impact would be extraordinary.”
The first set of $50 billion worth of tariffs aimed at China was broken down into two parts: $34 billion (tranche one) and an additional $16 billion (tranche two), which left the apparel industry largely unscathed. Tranche three came in the form of an additional $200 billion in tariffs, hitting certain apparel items, some leather, and hats and handbags. In surmising whether more tariffs could come down the pike, covering the entirety of what the U.S. imports from China and hitting apparel, textiles and footwear squarely in the jaw, signs appear to be pointing to “yes.”
“The 45th president of the United States wants a 45 percent tariff on China,” Helfenbein said partly in jest but largely in truth. As a candidate, Donald Trump had said he wanted a 45 percent tariff on China, and though he later recanted, adding what could become a 25 percent tariff as of Jan. 1 to a woven shirt that already carries a 20 percent duty, adds right up to that 45 percent.
The president, Helfenbein said, finds tariffs an effective way to do business and negotiate change. “His plan at the moment is to go all the way through,” he said. “We believe it’s coming our way. We believe there will be a fourth tranche.”
What’s perhaps of foremost concern is how an already struggling and in-transition retail sector will fare in light of the trade and tariff uncertainty as bankruptcies continue to fell brands that can’t keep up with the shifts in consumer behavior.
“I think that the retail community was about to have an upswing, but these tariffs do not help,” Helfenbein said.