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How Trump’s Tariffs Could Affect the Trade
US retailers will feel the impact of levies on Chinese products. Those that innovate and diversify will have an advantage.
Aug 11, 2019 10:06 AM
By Lara Ewen
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RAPAPORT... Long before the threat of tariffs on Chinese goods loomed large,
brick-and-mortar retailers in the US were facing challenges. So far this year,
US retailers have announced plans to shut down over 7,000 stores after almost
6,000 closed in 2018, according to research and advisory firm Coresight
Research, which estimates that the total could climb as high as 12,000 by the
end of the year.
With President Trump set to impose a 10%
tariff on $300 billion of imports from China on September 1, the move is
expected to have a profound impact on retailers and consumers. China currently supplies
42% of all apparel, 73% of household appliances, and 88% of toys sold in the
US, according to the National Retail Federation (NRF). And a recent analysis
from education and research website World’s Top Exports indicates that China is
the largest exporter of jewelry in the world. With $13.3 billion in outgoing
jewelry shipments last year, it accounted for 12.9% of the global total.
A volatile state
“For retail, these [new] tariff increases [would] be on a
magnitude that has not been witnessed in decades,” says Johan Gott, principal
in the consumer and retail practice of global management consultant A.T.
Kearney. “Over $100 billion of consumer goods would see tariffs imposed.”
That could directly impact retailers’ bottom lines, warns
Gott. “The cost of goods would rise. Retailers have the choice to absorb that
cost, or to pass it on to consumers. In the first instance, it would go
straight to margins, which in most cases are already razor-thin.” But increased
prices could result in fewer purchases, he says.
Discount retailers and general-merchandise retailers would
be most at risk, predicts Tyler Higgins, a director in the retail practice of
consultancy firm AArete. But while industries such as auto parts, and retailers
with a diversified manufacturing base, would be safer, even these could suffer,
he cautions. “As [the stock market] rises, optimism reigns, and as it falls, so
does optimism. Tariff fears produce a similar reaction.”
US retail is already in a volatile state, continues Higgins.
“The tariffs are just the next pressure point...that will threaten more
retailers and continue to result in closures by all types of retailers. If the
effect of tariffs kicks in, we expect those retailers that are the most
innovative, with the most loyal customers and the most diverse supply base, to
be in a position to increase their competitive advantage over those retailers
that continue to struggle.”
Not an ‘apocalypse’
Despite these concerns, Marie Driscoll, managing director of
luxury and fashion at Coresight, cautions against panic. While President Donald
Trump’s trade policies are exacerbating retail’s problems, she says, there are
other forces at work. A Coresight report from early this year positioned 2019
as a year of reinvention for retail, with more “spectacular” and data-driven
offerings, and increasingly smooth integration of technology with
brick-and-mortar stores, among other trends.
In addition, she says, store owners and analysts would do
well to stop using the term “retail apocalypse” when it comes to tariffs — or
anything else, for that matter. Calling it “an over-used phrase that surfaced
about two years ago,” she says current concerns don’t warrant hyperbolic
language, but flexibility, diversification, and new avenues of sourcing.
“The proposed tariffs have left the retail industry in a
state of indecision,” she points out, adding that although the tariffs are on
hold, the retail industry shouldn’t be too sanguine, since trade issues remain
unresolved. “Further diversification of production away from China is likely.”
Driscoll also doesn’t see consumers willing to endure higher
prices from stores that don’t manage to diversify. “What retailers and
consumers need to know is that in the short term, as retailers and brands move
to other regions for product sourcing, the apparel, footwear, and accessories
ecosystem will come under strain to meet the demand that China has hitherto been
meeting. This could have the adverse impact of increasing product prices,
similar to the increases the tariffs would have. And given the over-abundance
of most goods, it is unlikely the increased costs could be passed along to the
consumer in the form of higher prices.”
Impact on jewelry
For the gem and jewelry industry, the proposed tariffs would
have a profound effect, says David Bonaparte, president and CEO of Jewelers of
America (JA). Last year, US imports from China included over $2.08 billion in
jewelry, $233.1 million in gem diamonds and $1.07 billion in gemstones,
according to data from the US Census Bureau. As such, Bonaparte says the
tariffs — which his organization has opposed — would impact natural and
cultured pearls, diamonds, rubies, sapphires, emeralds, gold and silver jewelry
parts, gold necklaces, and synthetic gemstones.
“While China should be held accountable for its unfair trade
practices, and we must protect the intellectual property and competitiveness of
American companies, imposing tariffs, which put the bulk of the burden on US
consumers and businesses, is not the answer,” he asserts.
Yet like Driscoll, he cautions against fearmongering.
“Using a term like ‘retail apocalypse’ is not helpful to the
health of our retail community,” he states. “Retail is alive, and we don’t need
to push forth any unnecessary fear that could [erode] consumer confidence.”
JA is closely monitoring the issue, Bonaparte adds.
“We took a group of jewelers to Washington, DC, for our annual fly-in, and we
asked lawmakers to push the Trump administration to make a deal and end the
trade war. We need to fight for our independent jewelers to ensure they can
continue to prosper.”
The original version of this article was published in the August issue of Rapaport Magazine. It has been edited to reflect recent developments.
Image: A cargo ship. (Shutterstock)
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Tags:
a.t. kearney, China, Coresight, Coresight Research, David Bonaparte, diamonds, Donald Trump, ja, Jewelers of America, Jewelry, Johan Gott, Lara Ewen, Marie Driscoll, National Retail Federation, NRF, tariffs, Trade War, Tyler Higgins, US, US Census Bureau
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