President Donald Trump followed through with his threats against China and announced he would slap tariffs on $200 billion worth of Chinese imports next week, a move retailers fear will curb consumers’ spending power.
A list of products, many of them consumer facing, will be subject to 10 percent levies from September 24 to punish China for alleged unfair trade practices, the administration said Monday evening. The rate will be pushed up to 25 percent by the end of the year.
Chinese markets opened lower on Tuesday although the impact of new tariffs seemed to have been factored in earlier, and by the end of the day, both the Shanghai Stock Exchange and Hong Kong’s Hang Seng Index had bounced back gaining 1.82 percent and 0.56 percent, respectively.
Nonetheless, Margaret Yang Yan, an analyst at CMC Markets Singapore, noted that “both [markets have] declined by more than 20 percent from the last peak seen in February this year, in response to strengthening USD and trade war.”
The move came as Trump renewed his threat to target another $267 billion worth of Chinese imports that he can hit with levies on short notice, if further provoked by China.
“If China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports,” Trump said in a statement.
If Trump plays this hand, it will push the total amount of tariffs up to $517 billion, meaning every single Chinese product coming into the U.S. will be subject to levies, hurting the fashion sector, which is heavily reliant on China. The U.S. imported $505.5 billion worth of products from China last year. Within that, apparel came to $27 billion.
Trump has already implemented tariffs on goods totaling $50 billion. China hit back with tariffs equalling the same amount and is widely expected to do the same this week.
Anticipating the tariffs earlier today, Chinese Foreign Ministry spokesman Geng Shuang said: “If the U.S. imposes any additional tariffs on China, we will have to take necessary countermeasures and resolutely safeguard our legitimate and legal rights and interests.”
China is finding ways to hit back directly and indirectly, said William Zarit, chairman of AmCham China, which represents U.S. companies operating in the country. The association said the implementation of the latest round of tariffs would “cause suffering” for American companies, with over half of its 900-plus member companies subjected to a rise in non-tariff barriers in recent months.
“Increased inspections and slower customs clearance [are] among the most favored measures being applied by Beijing,” Zarit said. “However, this will not result in bringing more business back to American soil: Just 6 percent of our member companies say this current U.S.-China trade dispute would make them consider relocating operations back home.”
After receiving testimonies, the White House removed 300 products from the list, including smart watches, bicycle helmets and car seats. The removal of smart watches is believed to have been down to pleas from Apple, Inc.
As far as the fashion sector is concerned, the preliminary list featured a lot of accessories, including handbags, but the accessories industry, which made its case at hearings in Washington, D.C., was still in the dark as to whether its products had been made exempt or not.
Karen Giberson, Accessories Council President, told WWD that she was “anxious to hear what products were excluded”.
“If we are impacted, the transition of starting with the 10 percent increase should allow our companies some time to adjust prior to the 25 per cent increase,” she said.
Hun Quach, vice president of international trade of the Retail Industry Leaders Association, which represents big retails such as Walmart, Inc. added that he was “extremely discouraged” by the administration’s announcement to levy tariffs on millions of products American consumers buy every day.
“Tariffs are a tax on American families, period. Consumers– not China – will bear the brunt of these tariffs and American farmers and ranchers will see the harmful effects of retaliation worsen. We are disappointed to see that warnings from importers and exporters representing every sector of the U.S. economy have not been heeded with no time for mitigation,” he said.
Mahesh Sethuraman of Saxo Capital Markets said that with this latest round, “we have crossed the stage of mere signaling now and the real damage will start to show up in economic data and corporate earnings once the new tariff comes into effect.”
He added, “It is unlikely China will budge to U.S. pressure and in fact they are likely to retaliate as much as they can rather than make an attempt at truce after this round of escalation.”
Moody’s vice president for credit strategy and standards, Lillian Li, expects these latest measures to take off 0.3 to 0.5 percentage points off of China’s GDP growth over the coming year, however fiscal and policy easing from Beijing will largely offset it, leaving Moody’s forecast unchanged at 6.6 percent in 2018 and 6.4 percent in 2019.