So far, the American shopper has been a bit player in President Donald Trump’s trade war with China.
Starting Sunday, U.S. households take center stage in the escalating fight.
That’s when a 15% U.S. tariff is slated go into effect, essentially a tax on some of the $550 billion in Chinese imports that the White House hasn’t already slapped with levies. A portion of the $300 billion in shipments affected by the 15% tariff will be hit Sunday, and the rest on Dec. 15.
Here’s the concern: About 60% of the $300 billion – which includes about 3,800 items – is made up of finished consumer products, compared with 30% of the earlier duties on Chinese imports.
In the crosshairs Sunday are many types of apparel – including suits, jackets, pants, shorts, shirts, and outerwear – as well as TVs, diapers, coffee, whiskey, meat, cheeses and textbooks. Interviews with clothing retailers, a TV and appliance store and a houseware maker reveal growing concerns after Trump ratcheted up the tariffs last Friday.
But don’t expect instant sticker shock when you walk into your favorite big-box store next week. First, most merchandise doesn’t come from China, even though it may seem that way. China supplies about 26% of Walmart’s goods and 34% of Target’s, according to UBS. Also, retailers, manufacturers and distributors generally keep a few weeks of items on hand and many likely stocked up even more to evade the tariffs, says David French, senior vice president of government relations at the National Retail Federation.
In some cases, manufacturers are responding by keeping prices stable but selling products in smaller packages or making them with lower-grade materials, NRF’s French and some retailers say.
Love that chicken: Popeyes says it expects to sell out of its popular chicken sandwich by end of the week
Large chains that order in bulk are better equipped to absorb some of the levies by accepting narrower profit margins, persuading their suppliers to lower costs, spreading the tariff across more products and looking for alternate suppliers in other countries.
Yet while such strategies can blunt the impact of, say, a 10% tariff, several big merchants have said at least part of a 25% duty likely would be felt by shoppers.
The 15% tax taking effect Sunday could fall somewhere in between, with some prices rising modestly, though most retailers will likely do everything possible to avoid increases during the holiday season, French says.
“The supply chain can only absorb so much, and companies will have no choice but to eventually raise prices,” he says. French expects Trump to make good on his threat to lift the tariff to 25% by next year, ultimately pushing up retail prices broadly, barring a U.S.-China deal.
Small retailers most at risk
Many small stores and their customers are likely to feel a bigger effect, possibly within weeks, and some already have raised prices, several merchants said.
In Rehoboth Beach, Delaware, about 80% of the items in Carlton’s Men’s and Women’s Clothing are from China, says store owner Trey Kraus. In anticipation of a 25% tariff, manufacturers that supply the 59-year-old store began modestly raising their suggested retail prices late last year for spring apparel. They have also boosted prices further on newly arrived fall selections to avoid an abrupt increase when the tariff hits.
As a result, premium men’s pants that sold for $125 a year ago now retail for $149 – a price that includes the tariff and some markup, as well as some modest inflation – with shirts, dresses and other products undergoing similar hikes. Prices for some goods have largely held steady but manufacturers are using artificial instead of man-made fiber or less cotton, Kraus says.
Sales have declined somewhat as a result of the higher price tags, Kraus says.
“It’s frustrating with all the time and money and effort you put in,” he says. Noting he and his wife are in the store seven days a week and expected to be rewarded with healthy profits and a comfortable lifestyle, he added, “That’s not happening.”
Other apparel retailers and producers are rolling out new styles to justify the higher prices. Vivacity Sportswear makes women’s wear at its own U.S. factories and sells the products at a store in San Diego and online. But it has faced a 25% tariff on fabrics, which it imports from China, forcing 5% to 10% higher retail prices,, says owner Vivian Sayward. That duty is set to rise to 30% Oct. 1, a bump that Sayward says will affect her next year.
To give shoppers something extra for the higher price, “You can change the fabric, the style,” Sayward says. “Sometimes you can add a pocket.”
Technology products rely on China
Yedi Houseware, a Los Angeles-based product designer and manufacturer, has been hit with a 25% tariff on the oil-free air fryers it sources from China, with the company absorbing half the increase and passing half to consumers, says Vice President Bobby Djavaheri. Despite the higher price, the fryers have been a sensation amid the healthy food craze, helping quadruple sales this year.
But the narrower profits led Djavaheri to shelve plans to expand a warehouse and add 10 employees to his staff of about 20. He says no country other than China has the expertise and manufacturing network to assemble the complex products. The tariff on the fryers is set to increase to 30% in October, nudging the retail price a bit higher and further crimping Djavaheri’s profits.
A 15% tariff on most of the rest of his products – including pressure and precision cookers priced at about $110 on average – will take effect Dec. 15, forcing him to similarly absorb half the levy and pass half to customers. To minimize the impact, Djavaheri has scheduled millions of dollars of additional products to arrive from China before mid-December, tying up valuable capital but providing a stockpile that will last until late January. If Trump cancels the December tariffs, he says, “There’s no turning back.”
And if the levy rises to 25%, Djavaheri says the company his father, Yedidia, launched in 1979 will close down.
“Why do you get penalized for something you have no control over?” he says. “This has occupied every day my life for the past year. This is all I deal with.”
In Lincoln, Nebraska, Schaeffer’s, which sells TVs and appliances, had to raise prices on major appliances 5% to 7% early this year after a 25% tariff on washing machines took effect in early 2018, says store owner Ron Romero. Sales continued to rise, he says, noting that Lincoln has a vibrant economy, with unemployment at 2.8%. And appliances, he says, are a necessity. But he worries a 15% price increase on TVs in coming weeks could hurt revenue.
“People will do without a TV,” Romero says, especially if they have more than one set.
Trump intensified the trade fight late last Friday by hiking tariffs on Chinese imports more sharply than planned, responding to a new set of duties announced by China that same day. He tweeted at the time that on September 1 the levy would be 15% instead of10% on mostly consumer-targeted products. The rest of that $300 billion in goods – including cellphones, laptops, video game consoles and toys – will be hit with the higher 15% duty in mid-December.
And an existing tariff on $250 billion in Chinese goods – mostly industrial and intermediate items as well as items such as handbags, luggage, hats, and furniture – rose from 10% to 25% in May and will now climb to 30% Oct. 1.
All told, a 25% tariff on the $300 billion in Chinese imports would raise annual costs for U.S. households by $1,000 on average, according to a recent study by JPMorgan Chase. And the total yearly cost of the trade war, including a 25% tariff on all Chinese imports and related effects, would be $2,300 for a family of four, according to the Trade Partnership, a consulting firm.
Big retailers can soften blow, at first
Large chains are better positioned to mitigate the impact, at least initially.
“We’re going to continue to do everything we can to keep prices low,” Walmart Chief Financial Officer Brett Biggs told reporters on a conference call in May. “However, increased tariffs will lead to increased prices, we believe, for our customers.” In a government filing in late June, Walmart said a 25% tariff will likely mean higher prices “on certain items.”
At June hearings in Washington, Best Buy Chief Merchandising Officer Jason Bonfig said a tariff of up to 25% “could be immediately passed on to the U.S. consumer.”
In an Aug. 14 call with analysts, Macy’s CEO Jeff Gennette said, “What we have found is there’s no customer appetite for price increases.” Big retailers face brutal price battles with online giant Amazon and persistently low inflation.
Yet while Gennette said a 10% tariff is “manageable,” he added, “I think when it goes to 25%, you are dealing with a whole other series of dynamics that I would not say we wouldn’t have to raise prices.”
Car trouble: Trump would cost General Motors billions if he actually orders business out of China