For more than a year, the message to the Trump administration from the leaders of the American Apparel and Footwear Association has stayed the same: Do what you feel is right to curb Beijing’s unfair trade practices, but stay away from the American consumer.
While trade tensions between the world’s two largest economies escalated over the last year, the initial rounds of duties President Trump slapped on hundreds of billions of dollars of Chinese goods mainly focused on machinery and industrial materials, shielding consumers from price hikes.
However, that changed this summer when the Trump administration said it was imposing tariffs on all Chinese imports that previously escaped duties, thrusting American households to the center of the president’s protracted trade war.
The 15% tariffs target a wide swath of consumer goods, from electronics to apparel to footwear. Retailers are preparing to take a hit as the first round of duties imposed Sept. 1 targets 92% of apparel and 53% of footwear shipped to the United States from China. A second bout of 15% duties, which covers roughly $156 billion in imports, will take effect Dec. 15.
“Consumer confidence may be good, people have jobs, unemployment is low, so they may be buying, but at the end of the day, retail earnings are going to be hurt,” said Rick Helfenbein, president of the AAFA. “When that happens, that triggers all sorts of reactions. Unfortunately, prices go up, then sales go down, and jobs get lost. It’s that simple of a progression.”
The Trump administration first announced it would tax $300 billion worth of Chinese imports earlier this summer, prompting businesses to file thousands of comments with the Office of the U.S. Trade Representative, many of which urged the president to reconsider the levies.
Representatives from more than 300 companies also flocked to the nation’s capital to testify in person before administration officials, warning the duties would have a substantial impact on their operations and lead to higher prices for consumers.
Their efforts were futile, as the president moved forward with the tariffs, initially set at 10% but hiked to 15% last month.
For the apparel and footwear industry, which had been mainly spared from past rounds of tariffs, Trump’s trade policy has been a series of fits and starts, and the president’s decision to pursue the 15% duties indicated to them that the alarm bells they sounded about the damage of the levies largely fell on deaf ears.
“They’re not listening,” Helfenbein said of the Trump administration. “Honestly, it’s put our industry in the five stages of mourning because we just don’t know what to do with it.”
Helfenbein calls the Sept. 1 levies, which cover about $125 billion in consumer goods, the “Cinderella tax” because “the clock struck midnight and our beautiful clothes turned to rags.”
“That’s exactly what’s going to happen to the retail industry,” he said. “Some people are in denial, and denial goes a long way. Particularly the administration is in denial.”
Beijing has imposed levies on American products in response, including U.S. soybeans, and Chinese companies have stopped buying American agricultural products, delivering a sharp blow to farmers already feeling the pain. To lessen the sting for American farmers, the Trump administration provided up to $28 billion in aid.
Helfenbein said similar assistance might be needed for U.S. retailers, which have already seen store closings in the first four months of 2019 surpass those shuttered in all of 2018.
“If we get hurt, I assure you we’re going to go to the Commerce Department to ask Secretary Wilbur Ross for a bailout,” he said. “Why not? They bailed out the farmers. They don’t realize how much damage they’re causing. We’ll ask for a bailout, too.”
The Trump administration says the duties will not be paid by American consumers but rather by China, a notion that experts dispute. Also, the president acknowledged the 15% tariffs could hurt American consumers when he announced last month his administration would postpone some of the levies until Dec. 15 to stem the impact on the holiday shopping season.
However, Stephen Lamar, executive vice president of the AAFA, scoffed at the president’s suggestion that he has shielded retailers and consumers by delaying some of the levies.
“This concept of trying to sort of save Christmas is fake news,” Lamar said, adding that jackets, Christmas sweaters, mittens, gloves, and hats are among the items hit with the 15% tax on Sept. 1.
Helfenbein echoed the same sentiment.
“They were in denial for the longest period of time that tariffs were affecting the American consumer, yet [Trump] agreed to hold it back through the Christmas season,” he said.
Trump’s trade strategy, Helfenbein said, is “intertwined with the holiday season, except the Grinch didn’t look closely enough.”
The president has urged American companies to move their manufacturing out of China and back to the U.S. to escape the duties. But Lamar, who will take over as president of the AAFA next year, said shifting production isn’t easy.
“If I’m moving my supply chain or trying to move my supply chain, all the energy I have to expend on moving, to rebuild the compliance, rebuild the partnerships, test orders, that takes time and money and expense,” he said. “That’s a whole other cost that gets added in that no one is talking about. It’s not just the direct cost of the tariff.”
Already, some major American companies have moved manufacturing out of China, but to other countries in Southeast Asia, including Vietnam, Taiwan, and Malaysia rather than the U.S.
Though the most recent round of tariffs has already taken effect, Helfenbein said the impacts haven’t “trickled into the economy yet.”
“But I can assure you it’s coming,” he said.
Helfenbein doubts the president will back off the Dec. 15 tariff round. Instead, he predicted the trade war would only get worse and that it will take the Dow Jones Industrial Average sinking 3,000 or 4,000 points for the administration to take action.
Data suggests that the ongoing trade war is already affecting the economy. A survey from the Institute for Supply Management showed American manufacturing activity contracted for the first time since 2016, and the Federal Reserve has warned the ongoing trade war could threaten economic growth.
However, consumer spending jumped in July, the Commerce Department reported last month, easing concerns the U.S. may be headed for an economic downturn.
Lamar said the uncertainty of the president’s trade policy has added to the struggles of retailers.
“You now have to build uncertainty into your model,” he said. “How do you build uncertainty into your economic planning model?”
Lamar predicts the investment and innovation sacrificed because businesses have channeled their energy into managing the unpredictability of Trump’s trade policies will only be understood in years to come.
Retailers, he said, are still trying to figure out how to survive the fallout from the trade war.
“The bottom line is realizing that Washington is probably not going to be able to fix the problem that Washington created,” Lamar said. “They have to take matters into their own hands.”
