Trump giveth and Trump taketh away.
President Donald Trump laid out a new 25 percent trade tariff against unspecified products from China worth at least $50 billion a year. The move was prompted by what the administration characterized as trade violations by China, including theft of technology and trade secrets. The tariffs come only a few months after the administration passed a tax reform bill that put tax rates at their lowest ever for many U.S.-based retailers and brands.
In revealing the new tariffs, Trump said the move would make the U.S. “a much stronger, richer nation.”
But Wall Street investors worried the move would spark a trade war.
The tariffs helped send the Dow Jones Industrial Average down 724.42 points, or 2.9 percent, 23,957.89. Among the fashion and consumer stocks taking a hit for the day were Alibaba Group Holding, down 5.5 percent to $184.65; Canada Goose Holdings Inc., 5.3 percent to $34.54; Ross Stores Inc., 3.1 percent to $75.04; VF Corp., 3 percent to $72.39; Gap Inc., 2.8 percent to $31.18, and L Brands Inc., 2.7 percent to $38.36.
Robert Lighthizer, U.S. Trade Representative, said: “President Trump has made it clear we must insist on fair and reciprocal trade with China and strictly enforce our laws against unfair trade. This requires taking effective action to confront China over its state-led efforts to force, strong-arm and even steal U.S. technology and intellectual property.”
Lighthizer’s office said a full list of products subject to the new tariffs will be published “within the next several days.”
China’s Commerce Ministry preempted the tariffs with a brief statement noting it will take “all necessary measures” to protect its “legitimate rights.”
Imposition of the tariffs had become expected by the retail and fashion industries over the last few weeks, but given Trump’s noted unpredictability, trade groups might have been holding out hope that a change of tune would come. This week had scores of groups across retail, fashion and textiles urging the administration to find another solution to China’s alleged violations, noting new tax benefits are set to be wiped out.
Now lobbying groups like the Retail Industry Leaders Association, the National Retail Federation and the American Apparel and Footwear Association are left trying to position the move as essentially another “tax on families” — not to mention potentially the fashion industry, at large, which is a huge importer from China.
“Retailers fully support holding our trading partners accountable when there is a proven case of intellectual property theft,” said Hun Quach, RILA’s vice president of international trade. “But the punishment should fit the crime, and more importantly, it should punish the bad actor — China. Taxing American families with widespread tariffs on everyday consumer products clearly misses the mark. There is no way to impose $50 billion in tariffs on Chinese imports without it having a negative impact on American consumers.”
Meanwhile, the NRF said the tariffs are a punishment for “ordinary Americans,” who it claimed benefit from tax reform, despite many people seeing only minute reductions in regular income tax deductions that are set to expire and the bill taking away typical expense write-offs, like mortgage costs.
“Engaging in a trade war will erase those gains and result in higher prices for a wide range of consumer products and basic household goods,” said Matthew Shay, NRF’s chief executive officer. “And the tariffs will create uncertainty for retailers and other businesses [that] are prepared to reinvest savings from the tax cut in capital investments, wage increases, workforce training and new jobs in communities across the country.”
Shay said the NRF is still talking with the administration and congressional leadership about alternatives.
While several retailers, such as NRF member Walmart and Target, have cited tax reform as a cause for their decision to increase their starting wage, new analysis has found that a majority of corporate savings from taxes are set to go to shareholders.
An analysis by Just Capital, an independent nonprofit group tracking corporate performance, looked at companies that have unveiled plans for their collective $150 billion savings from tax reform and found that 57 percent of the savings are set to go to shareholders. Only 6 percent is set to go to workers in the form of wage increases, bonuses or expanded benefits.
Even the Information Technology and Innovation Foundation, a science and tech think tank that “applauded” Trump’s effort to halt China’s purported abuse of economic and trade policies, cautioned that including consumer and producer goods in the tariffs will slow the U.S. economy.
“It is important for the pushback to be carefully targeted and focused on the steps that will have the most leverage over China so that it doesn’t raise prices and dampen investment in the kinds of machinery, equipment, and other technology that drive innovation and productivity across the economy,” an ITIF spokeswoman said.
One industry group that seems pleased with Trump’s plans is the National Council of Textile Organizations. Its outgoing chairman William McCrary Jr. said the last year has been “amazing for the U.S. textile industry,” adding that “Trump’s pro-manufacturing agenda is forcing Washington to do what NCTO has long sought — rethink policies on trade, taxation, regulatory reform and a host of other issues.”
The value of shipments from U.S. textile firms last year increased about 4.5 percent to $77.9 billion, an increase of 16 percent compared to 2009, according to NCTO data. Last year’s shipments for the apparel sector totaled $12.5 billion.
But that’s a fraction of the amount of apparel imported from China last calendar year, which came in at $26.85 billion, or in square meter equivalent (essentially volume), 11.37 billion sme, an increase of less than a percent over 2016, according to data from the International Trade Administration’s Office of Textiles and Apparel. The office includes everything from cotton mittens to lingerie in the apparel category.