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US Signing of Phase One Trade Deal Brings Little Tariff Relief for Retail

The U.S. and China officially signed phase one of what’s expected to be a broader trade deal, though American brands and retailers won’t see the tariff relief they had hoped for.

As part of the initial trade deal, which was announced on Dec. 13, President Trump cancelled the list 4B batch of tariffs that would have followed two days later, halved the tariff rate on list 4A goods to 7.5 percent, but retained 25 percent tariffs on tranche 3 goods, including thread, yarns, textiles handbags and some apparel.

In large part, despite the festive mood from the White House surrounding the signing Wednesday, the phase one agreement does little to brighten prospects for retailers still reeling from last year’s uncertainty.

“This deal provides the apparel and footwear industry with very limited tariff relief following the biggest tariff increase since the Great Depression,” Steve Lamar, president and CEO of the American Apparel & Footwear Association, said Wednesday. “All of our products that have been hurt by this trade war will continue to be hit—including 92 percent of the apparel, 53 percent of the footwear, 68 percent of the home textiles, and all of the travel goods and accessories that are imported from China, which is the primary source of these products.”

The National Retail Federation, the largest U.S. trade group for the industry, called for President Trump to do more on the tariff front.

NRF strongly supports the administration’s efforts to address China’s unfair trading practices but we hope this is the first step toward eliminating all of the tariffs imposed over the past two years,” said NRF president and CEO Matthew Shay, who was present at the White House signing. “The trade war won’t be over until all of these tariffs are gone. We are glad to see the phase one deal signed, and resolution of phase two can’t come soon enough.”

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What the phase one deal does do is begin to address China’s so dubbed unfair trade practices—which Trump called “easy pickins’” and “pillage” during a White House conference Wednesday—focusing on remedies for its intellectual property practices and greater protection for U.S. trade secrets. What it likely won’t do is improve U.S. manufacturing as much as the president had hoped.

“The deal does little to help American manufacturers in our industry. Not only does this deal leave in place tariffs on key imports of materials and machinery used to make clothing, footwear and textiles in the U.S., but it also allows China to keep in place huge retaliatory tariffs on American exports of cotton, hides, leather, textiles, shoes and clothing,” Lamar said.

Trump, however, said the phase one deal “will also see China greatly expand imports to the United States,” and that the world’s second-largest economy will pour as much as $75 billion into U.S. manufacturing.

“Farmers are going to be so happy,” the president said, because, as part of the new deal, he expects China will spend between $200 billion and $500 billion on agriculture over the next two years. Farmers for Free Trade association spokesperson Michelle Erickson-Jones, disagreed with the president’s sentiment, however.

“This deal does not end retaliatory tariffs on American farm exports, makes American farmers increasingly reliant on Chinese state-controlled purchases and doesn’t address the big structural changes the trade war was predicated on achieving,” she said in a statement Wednesday. “The promises of lofty purchases are encouraging but farmers like me will believe it when we see it.”

For the National Council of Textile Organizations (NCTO), which has largely been in support of tariffs on China-made goods as they should have contributed to reinvigorating the domestic market, there’s doubt about the method behind the phase one deal and the tariff breaks it does afford.

“We question the last-in, first-out approach to the tariff reductions,” NCTO president and CEO Kim Glas said Wednesday. “In our sector, this means that the penalty 301 tariffs on finished apparel and sewn products—the areas where tariffs have the most potential to effect reforms in China while bolstering the Western Hemisphere supply chain—are cut in half while U.S. manufacturers continue to face full tariffs on certain inputs and equipment not available domestically.”

There was little said about phase two of the trade deal, and there has been some doubt as to whether things will in fact progress from here.

The Footwear Retailers and Distributors of America (FDRA) trade group is, however, hopeful the signing of the initial deal will bode better for business in 2020.

“We are pleased to see the first round of negotiations coming to a close in the signing of the Phase One agreement today,” FDRA president and CEO Matt Priest said. “While it does not remove all the punitive tariffs the Trump Administration has levied against American companies and consumers, it will provide a little more certainty as we start the new year, which is key to job growth and retail price stability for shoe consumers.”

“Even with the removal of some of these duties, footwear tariffs will still average 12.2 percent with up to 67.5 percent on certain kids’ shoes,” he added. “A dynamic U.S. trade policy would not just reduce tariffs back to pre-Trump Administration rates but would actually trim them further to spur economic growth and consumer buying power.

“This is a story we are preparing to tell policymakers in Washington, D.C.,” Priest said, “as we go back on the offensive in 2020.”