LONDON — Brexit? That’s old news already.
Today — the day Britain officially exits the European Union — might be a momentous moment for some, and a mournful one for others, but it’s no longer top of mind for many of Britain’s luxury manufacturers, which now have bigger problems on their hands than exporting post-Brexit.
Having already swallowed a 25 percent tax imposed by the U.S. in October on British exports of merino wool, sea island cotton and cashmere knitwear as well as high-end men’s suits, producers are now dreading the arrival of even higher tariffs on exports earmarked for the U.S.
Some manufacturers fear that if U.S. tariffs go as high as 100 percent — a distinct possibility — they could cripple some British businesses, or force them to cease selling in the U.S. altogether.
“To say we are nervous would be an understatement,” said Douglas Fang, the owner of Pringle of Scotland, in a telephone interview from the U.S., where he is traveling for work.
“There is worry in the market, in the showrooms,” he said. “We are looking at potential price increases, and having conversations with U.S. retailers that are wholly unrelated to fashion. This is very much outside our control. We’re experts in knitwear, not politics.”
Pringle produces the bulk of its knitwear in Scotland, and almost all of its cashmere comes from the country. He said the U.S. is an important part of the business, and has been growing healthily, even with the extra 25 percent tariffs, which the company absorbed together with its U.S. partners.
Asked what he would do if U.S. tariffs rose to 100 percent, Fang said: “I don’t even want to consider it. We’re hoping it all gets sorted out.”
The potential new tariffs spring from two separate disputes.
The first is a long-running, and still unresolved, World Trade Organization/Airbus tussle between the U.S. and the European Union, which spawned the original 25 percent tax on various luxury goods in countries such as Britain, France, Italy and Germany.
The EU could still retaliate against those October measures, which would escalate this particular war with the U.S., the longest-running trade dispute in WTO history. Even with Brexit, the Brits are embroiled in the WTO/Airbus dispute as it began while they were part of the EU. Plus, parts for Airbus are still produced in the country.
The second dispute comes from a “tech tax,” which Britain is threatening to slap on U.S. giants such as Apple, Amazon and Facebook. The 2 percent tax on those companies’ revenues would come into force in April, and the U.S. is already threatening to retaliate.
Earlier this month in Davos, the U.K.’s Chancellor of the Exchequer Sajid Javid was defiant, saying Britain would not back down on the tax, even though France has agreed to put its proposed tax on ice until the end of this year.
While the U.S. government has made specific threats about taxing British-made cars, fashion and knitwear, manufacturers here have been warned that their goods could be subject to taxes of up to 100 percent once they land in the U.S.
To make matters worse, no one seems to know when a review of the existing tariffs may take place. Negotiations and talks around on both issues are ongoing.
“We have stopped talking about Brexit. These potential tariffs are a far more daunting prospect; the looming risk of a 100 percent tax that could come into effect as early as April,” said Bill Leach, sales director at John Smedley, which has been manufacturing high-end knitwear in the U.K. for 235 years and which exports to 40 countries.
By comparison, Brexit is a no-brainer. “We know we are exiting from the EU, and that there will be a year of transition. We’ve already had a couple of years to prepare for Brexit, we’ve stress-tested our strategies. For the first time, Brexit is no longer the number-one priority.”
Leach said his company chose to absorb the extra 25 percent tariff which took effect back in October because they wanted to protect their U.S. business, even if it meant putting pressure on margins. “Our retailers thanked us for it, and we hoped the problem would end there,” he said.
Asked about the impact of a 100 percent tariff on goods landing in the U.S., he said it would effectively put an end to John Smedley’s business in that market, where clients include Bergdorf Goodman, Nordstrom and Todd Snyder.
He estimated that if a three-figure tariff did come into force, a sweater with an average retail price of $350 right now would cost more than $500, depending on the stores’ markups.
“A small but successful business can absorb a 25 percent tariff, but it is not possible to absorb a 100 percent one,” he said, adding that a tax of that nature would also have a devastating impact on British companies’ U.S. businesses for years to come.
“You come off the shelves in the U.S., and another brand goes in because U.S. buyers will look to other countries of origin, like Italy, which is a big competitor of ours,” he said.
Italy is not in the crosshairs of President Trump’s trade offensive the way Britain is, and many in the industry say that its homegrown brands, such as Malo, could easily slot right into the space left open by British brands.
Paul Alger, director of international business at UKFT, the U.K. Fashion and Textile Association, said in a worse-case scenario of 100 percent tariffs, Scottish companies could suffer the most.
The U.S. is Scotland’s top international export destination, with whisky, men’s suiting, Fair Isle sweaters, Brora and Pringle cashmeres already under siege from the 25 percent tariffs.
Ironically, the small knitwear manufacturers and artisans in the Highlands and on the Scottish islands will bear the brunt of tariffs imposed by an American president of Scottish heritage (Trump’s mother was from the Hebridean Isle of Lewis) who owns vast swathes of property in the country.
Alger said higher tariffs on Scottish exports could be a “wrecking ball” for the local economy, and Walpole’s chief executive officer Helen Brocklebank echoed those concerns.
“We are extremely concerned about the impact of any further tariff hikes on our members, particularly on Scottish cashmere,” she said. Walpole represents British luxury companies across a variety of sectors.
“The tactics of passing the increase on to customers isn’t something anyone wants to do, but there isn’t the margin to absorb increases, which could be up to 100 percent. We are very concerned about the impact on British jobs and urge policymakers to find a resolution and avoid a tit for tat tariff battle, which benefits no one — not customers, not business,” she added.
Alger said he is hoping things will calm down.
“Trade wars are not good for business or for free trade agreements,” he said, noting that the timing of these two bubbling trade wars is not ideal. After all, with Brexit now done, the British government has to negotiate a raft of post-Brexit trade deals and the U.S. is its second-most important market after the European Union.
Alger said the Trump administration seems keen to broker a new deal with China, and may be in the mood for compromise, especially in an election year.