“Tariff Man” is back and the wider retail world is not happy about it.
Representatives of both importers and U.S. textile companies — two groups that rarely see eye to eye on trade issues — voiced their fury after President Donald Trump once again used trade tariffs to assert the United States’ power on the global stage.
This time, however, it was not China on the receiving end, but Mexico, with Trump unexpectedly threatening to place levies on all Mexican imports, starting June 10, if the country fails to curb illegal immigration at the southern border.
“This is unfathomable,” Rick Helfenbein, president and chief executive officer of the American Apparel & Footwear Association, said of the 5 percent levies, which will rise gradually until reaching 25 percent in October. “More than 200,000 jobs in our industry, and countless more across the United States depend on strong trade linkages with Mexico.”
He stressed that the hundreds of apparel, footwear, and sewn products companies and their suppliers that the AAFA represents are already bracing themselves for incoming 25 percent tariffs on Chinese imports and now have to grapple with the prospect of yet more tariffs on Mexican imports.
As well as disrupting retailers that already have operations in Mexico, the move will impact those that had been looking to shift some production to the country if the Trump administration follows through with its threat to slap tariffs on all Chinese imports.
Official data shows that production shift was already starting to happen, with Chinese imports of some goods that have already been targeted, like hats and leather goods, decreasing in 2018 while imports of those same products have been increasing from Mexico.
Another concern is the impact that more tariff talk will have on consumer confidence.
According to the University of Michigan’s closely watched survey of consumers, confidence eroded significantly in the last two weeks of May, with 35 percent of respondents citing the trade war as negatively impacting their mood. This was up from just 16 percent in the first half of the month and equal to the peak recorded last July in response to the initial imposition of tariffs.
Retailers have been struggling with slowing sales and last week, Emanuel Chirico, chairman and ceo of PVH Corp., linked trade war sentiment to the group’s slowing sales on both sides of the Pacific.
And it’s not just AAFA or consumers who are up in arms.
David French, senior vice president for government relations at the National Retail Federation, warned that the growing tariff bill paid by U.S. businesses and consumers is adding up and will raise the cost of living for American families.
“Forcing Americans to pay more for produce, electronics, auto parts and clothes isn’t the answer to the nation’s immigration challenges,” he added.
Elsewhere, Hun Quach, vice president of international trade at the Retail Industry Leaders Association, which represents major retailers including Walmart, Target and Walgreens, zeroed in on the fact that this latest move is in stark contrast to the trade policy with Mexico that the U.S. was still pursuing just hours before Trump revealed the tariffs in a tweet.
Quach was referring to the United States-Mexico Canada Agreement, the trade deal that was intended to replace the North American Free Trade Agreement and was due to be sent to Congress for approval within the next 30 days.
He scolded the Trump administration for operating a “confusing and counterproductive strategy” by threatening tariffs on Mexican imports while simultaneously seeking support in Congress for a trade deal aimed at keeping trade barriers low with Mexico.
The National Council of Textile Organizations also laid bare the importance of Mexico to its members, valuing its two-way textile and apparel trade at $12.2 billion.
“We are very concerned about the impact these proposed tariffs would have on a critical and integrated supply chain for the U.S. and Mexico textile and apparel industries,” Kim Glas, its president and ceo, said.
“Adding tariffs to Mexican apparel imports, which largely contain U.S. textile inputs, would significantly disrupt this industry and jeopardize jobs on both sides of the border. And as a result, it will accelerate substantially the immigration issues the administration is seeking to address.”
The tariffs also received a very frosty reception on Wall Street, with the Dow Jones Industrial Average plunging 354.84 points to 24,815.04 as investors became increasingly nervous over the prospect of a full-blown trade war involving multiple countries.
Among the retail stocks feeling the pressure and losing ground after the shock announcement were Gap Inc., down 9.3 percent to $18.68 on the back of disappointing first-quarter earnings; Tailored Brands Inc., 10.7 percent to $5.26; Stitch Fix Inc., 1.5 percent to $23.16; Capri Holdings, 3.9 percent to $32.48, and Nordstrom Inc., 2.5 percent to $31.30.
Wrangler and Lee owner Kontoor Brands Inc., which was singled out by analysts at Credit Suisse as the only apparel company in its coverage with large exposure to Mexico at around 30 percent, saw its share price slide 5.9 percent to $29.30.
Many retailers have already suffered sizeable drops in their shares since trade talks between China and the U.S. imploded on May 5.