The trade war between the U.S. and China escalated Friday with forthcoming retaliatory Chinese tariffs on American imports, and President Trump reacting with a series of tweets that essentially called for products to be “Made in the U.S.A.”
Tariffs: China on Friday disclosed retaliatory tariffs on $75 billion worth of U.S. imports, as well as resuming 25 percent duties on American automobiles. The tariffs, ranging between 5 percent to 10 percent, will hit American goods in two waves, Sept. 1 and Dec. 15. Those key dates coincide with the new 10 percent tariffs Trump has levied on $300 billion in Chinese imports on the list known as Tranche 4. The duties on American cars, and a 5 percent tax on auto parts, are slated to go into effect on Dec. 15. They had been put on hold in April as the parties tried to negotiate a resolution to their trade dispute.
Trump retaliated in a series of tweets that ordered all U.S. companies with operations in China to look elsewhere for alternative sourcing options. He also tweeted that the alternatives include “bringing your companies HOME and making your products in the USA.” In one of the tweets, Trump also noted that Fentanyl kills 100,000 Americans a year, adding that Chinese President Xi Jinping said the shipments would stop, but hadn’t. So Trump also ordered all carriers, “including Fed Ex, Amazon, UPS and the Post Office, to SEARCH FOR & REFUSE all deliveries of Fentanyl from China (or anywhere else!).”
Trump also tweeted: “I will be responding to China’s Tariffs this afternoon. This is a GREAT opportunity for the United States.”
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Just exactly how great the opportunity is is up for debate, even if many agree with Trump’s point of contention in the trade dispute that more needs to be done to protect U.S. intellectual property assets.
As for sourcing and the supply chain, many apparel firms and retailers working with factories overseas for private-label goods have been decreasing their production levels with Chinese factories for years. Some are still at 20 percent, and many are even lower at below 10 percent of total production. For the work that’s still being done in Chinese factories, companies might find their options limited in their search for “an alternative to China,” as Trump tweeted. That’s because factories elsewhere could be at or near capacity. And companies that find new locations might still need time and money to invest in infrastructure so they can scale up production efficiently.
Next week could see more gamesmanship maneuvers from each side, or at least more tweets from Trump.
The U.S. Economy: The volatility of the U.S. equity markets could continue next week and into September. While chatter about a recession still might be premature, talk of a slowdown to build to a roar if the August report on consumer confidence from The Conference Board shows any pullback on spending. That report comes out on Tuesday.
Earnings: Fashion firms and retailers that have already reported their quarterly earnings results have mostly indicated that they’ve been able to mitigate some of the expected impact from higher costs due to the forthcoming tariffs. Some retailers–such as Macy’s CEO Jeff Gennette–have said that consumers have refused higher ticket prices stemming from the tariff hike. Several companies–Guess Inc., PVH Corp., Burlington Stores, Chico’s FAS, Five Below, J. Jill and Abercrombie & Fitch–get their say next week.