The handbag industry can breathe a temporary sigh of relief as U.S. President Trump and China’s President Xi Jinping agreed on a 90-day truce in the trade war, shelving planned tariff increases in January.
In what was widely billed as a make or break meeting on the escalating trade war between the U.S. and China, the two leaders had dinner Saturday night at the end of the G20 leaders summit in Buenos Aires.
Despite strong rhetoric from Trump in the days leading up to the meeting, the heads of the two superpowers made a deal that the U.S. government would put on hold its plans to increase levies on $200 billion worth of Chinese imports — many of which are consumer facing and include handbags. Duties were set to rise to 25 percent from 10 percent on Jan. 1.
The Trump administration warned that if negotiations do not go well, tariffs will rise in March.
“Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10 percent tariffs will be raised to 25 percent,” a White House statement on the summit said.
For now, the temporary truce will no doubt be welcomed by the handbag industry, which has been scrambling to prepare for higher tariffs on Jan. 1, although they will still have to stomach the 10 percent tariffs that were implemented in September. While they could still be hit with additional levies, the ceasefire will give them more time to prepare.
It was not just the handbag industry that faced additional tariffs as there were almost 6,000 products in the firing line and retail giant Walmart Inc. had previously warned that should the tariffs go into effect, its customers will face cost increases for essential items such as car seats, cribs, backpacks, hats, pet products and bicycles.
In return for the U.S. holding off on the 25 percent levies, China has agreed to make a “very substantial” purchase of a range of U.S. goods, including immediate purchases of U.S. agricultural products.
If the meeting had not gone well, Trump had threatened that he had eyed another $267 billion worth of Chinese imports that he could hit with tariffs. If this had happened, it would have been very unlikely that the fashion industry would have emerged unscathed this time, having largely avoided a big hit in September.
“America’s retailers are encouraged by President Trump and President Xi’s decision to find a path forward that will keep America competitive, grow our economy, and support the millions of American jobs impacted by trade,” said Hun Quach, vice president for international trade at the Retail Industry Leaders Association.
Quach added: “Achieving a resolution that forgoes a 25 percent increase and any additional tariffs placed on everyday consumer items will benefit millions of American families across the country. We look forward to working with the administration as they continue to find a resolution, which includes providing a product exclusion process for the third tranche of tariffs as was provided for the first two rounds of tariffs.”
Analysts cautioned that this is just a temporary fix, with both sides agreeing to a 90-day negotiation over the broader trading relationship between the two countries.
“That means if the negotiations fail or drag on too long, the tariff rate on the $200 billion of China exports to the U.S. could still be raised by early February and the U.S. would presumably look to impose tariffs on the remaining $250 billion of imports from China that are still tariff-free,” according to Paul Ashworth, chief U.S. economist at consultancy firm Capital Economics.
The Trump administration including plenty of China hawks who are pushing the protectionist agenda. Ashworth suspects China will have to offer a little more than the minor concessions that South Korea, Mexico and Canada agreed to in order to reach trade deals with the U.S.