A lot can happen over a weekend — especially when President Trump has access to Twitter.
This past one was more eventful than most for trade watchers, though, who were taken aback when Trump tweeted that he would on Friday raise tariffs on $200 billion worth of Chinese imports — many of which are consumer-facing and include handbags — to 25 from 10 percent.
“The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” he tweeted.
Trump, who has in the past referred to himself as a “Tariff Man,” didn’t stop there. Via a second tweet, he renewed his threat to slap 25 percent levies on a further $325 billion worth of goods coming from China.
This would be in addition to the already imposed 25 percent tariffs on another $50 billion and mean levies on all Chinese imports, dragging apparel and footwear into the fray for the first time. The fashion industry has so far remained relatively unscathed, with the exception of handbags.
His comments came as a surprise to many, including Chinese negotiators, as there had been several strong signs that trade talks between the superpowers were humming along nicely and that the two sides were close to reaching a deal, with a delegation from China due to land in Washington, D.C., this week to conclude talks.
But the reason for the about-turn, according to comments made by U.S. Trade Representative Robert Lighthizer to The Wall Street Journal on Monday, was that cracks started to appear in talks over the weekend, with China reneging on previous commitments for unknown reasons.
While most experts agreed that the tweets and Lighthizer’s comments could just be a negotiation tactic, upping the ante on Chinese negotiators, all stressed that the threat has to be taken seriously by companies, which should brace themselves for the prospect of higher levies at the end of the week.
Steve Lamar, executive vice president of the American Apparel & Footwear Association, said: “It could be it’s just bluster. It could be it’s just theatrics and we know the President is part of that. A lot of people are hoping that it amounts to no more than that, but it could be that in less that 72 hours we could see the tariffs increase.”
David French, senior vice president for government relations at the National Retail Federation, added that it’s not a good sign when the President is suggesting such a large expansion of the tariff regime.
“It appears that the President is willing to escalate this trade war to a much higher tempo than it had been at. I think that’s a disappointing development,” he told WWD.
As for the market’s take on the tweets, they appear to be on the optimistic side, with the Dow Jones Industrial Average slipping by just 66.47 points to close at 26,438.48, recovering much of its earlier losses, while the S&P 500 ended the day down only 0.4 percent, on hopes that a deal can still be made and that the President’s tweets are part of a negotiation.
Searching for clues as to what will happen, all eyes will no doubt turn to China to see if Vice Premier Liu He will arrive, as previously planned, in the nation’s capital this week.
“Whether the vice premier comes seems to be up in the air at the moment,” said Erin Ennis, senior vice president of the U.S.-China Business Council, who believes that a smaller group of negotiators will still travel to D.C.
She added that if the President does go ahead with tariffs, China is likely to respond by placing levies on U.S. goods — like it has previously — although it has less bargaining power since it receives fewer products from America.
For handbag retailers, the prospect of 25 percent tariffs is nothing new. The higher levies were meant to come into place at the beginning of the year, but were shelved as part of a temporary trade truce.
“This has been a conversation and a potential reality since last September,” said Accessories Council president Karen Giberson.
“I’d like to think that many people were prepared, but that being said, things seemed like they were moving along so has everyone priced their goods accordingly and can anybody adjust shipments with five days’ notice? I think that’s almost impossible. No buyer is going to go back to you and say, ‘Hey, I know you’re going to have to pay a tariff, let me pay more for those goods’.”
She believes that in the short term, the council’s members, especially those that sell to department stores, will have to take a hit and see their margins squeezed, but in the longer term they will have to raise prices, hurting the consumer.
The “crippling and painful” tariffs on Chinese imports, is just one of many factors, currently negatively impacting the handbag industry, which Giberson believes is “under attack.”
Elsewhere, the European Union has mooted higher levies, while preferred nation status was lifted from India and Turkey so there are now tariffs on leather products coming in from those two countries.
But it’s not just handbags that are in the firing line as almost 6,000 products are included in the $200 billion that Trump is targeting, with retail giant Walmart Inc. previously warning 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.
What’s more, Michael Binetti, an analyst at Credit Suisse believes that off-price and department stores that have big businesses in categories like home furnishings could also be impacted. This includes the TJX Cos. Inc., Ross Stores, Kohl’s Corp and J.C. Penney Co. Inc.
The latter two will also be affected because they have built up their toys offering in the wake of the Toys “R” Us bankruptcy, as have Walmart and Target Corp.