How Trump's Tariffs Could Affect the Trade

RAPAPORT... Long before the threat of tariffs on Chinese goods loomed large,brick-and-mortar retailers in the US were facing challenges. So far this year,US retailers have announced plans to shut down over 7,000 stores after almost6,000 closed in 2018, according to research and advisory firm CoresightResearch, which estimates that the total could climb as high as 12,000 by theend of the year.With President Trump set to impose a 10%tariff on $300 billion of imports from China on September 1, the move isexpected to have a profound impact on retailers and consumers. China currently supplies42% of all apparel, 73% of household appliances, and 88% of toys sold in theUS, according to the National Retail Federation (NRF). And a recent analysisfrom education and research website World's Top Exports indicates that China isthe largest exporter of jewelry in the world. With $13.3 billion in outgoingjewelry shipments last year, it accounted for 12.9% of the global total.A volatile state"For retail, these [new] tariff increases [would] be on amagnitude that has not been witnessed in decades," says Johan Gott, principalin the consumer and retail practice of global management consultant A.T.Kearney. "Over $100 billion of consumer goods would see tariffs imposed." That could directly impact retailers' bottom lines, warnsGott. "The cost of goods would rise. Retailers have the choice to absorb thatcost, or to pass it on to consumers. In the first instance, it would gostraight to margins, which in most cases are already razor-thin." But increasedprices could result in fewer purchases, he says. Discount retailers and general-merchandise retailers wouldbe most at risk, predicts Tyler Higgins, a director in the retail practice ofconsultancy firm AArete. But while industries such as auto parts, and retailerswith a diversified manufacturing base, would be safer, even these could suffer,he cautions. "As [the stock market] rises, optimism reigns, and as it falls, sodoes optimism. Tariff fears produce a similar reaction." US retail is already in a volatile state, continues Higgins."The tariffs are just the next pressure point...that will threaten moreretailers and continue to result in closures by all types of retailers. If theeffect of tariffs kicks in, we expect those retailers that are the mostinnovative, with the most loyal customers and the most diverse supply base, tobe in a position to increase their competitive advantage over those retailersthat continue to struggle."Not an 'apocalypse'Despite these concerns, Marie Driscoll, managing director ofluxury and fashion at Coresight, cautions against panic. While President DonaldTrump's trade policies are exacerbating retail's problems, she says, there areother forces at work. A Coresight report from early this year positioned 2019as a year of reinvention for retail, with more "spectacular" and data-drivenofferings, and increasingly smooth integration of technology withbrick-and-mortar stores, among other trends. In addition, she says, store owners and analysts would dowell to stop using the term "retail apocalypse" when it comes to tariffs - oranything else, for that matter. Calling it "an over-used phrase that surfacedabout two years ago," she says current concerns don't warrant hyperboliclanguage, but flexibility, diversification, and new avenues of sourcing. "The proposed tariffs have left the retail industry in astate of indecision," she points out, adding that although the tariffs are onhold, the retail industry shouldn't be too sanguine, since trade issues remainunresolved. "Further diversification of production away from China is likely." Driscoll also doesn't see consumers willing to endure higherprices from stores that don't manage to diversify. "What retailers andconsumers need to know is that in the short term, as retailers and brands moveto other regions for product sourcing, the apparel, footwear, and accessoriesecosystem will come under strain to meet the demand that China has hitherto beenmeeting. This could have the adverse impact of increasing product prices,similar to the increases the tariffs would have. And given the over-abundanceof most goods, it is unlikely the increased costs could be passed along to theconsumer in the form of higher prices." Impact on jewelryFor the gem and jewelry industry, the proposed tariffs wouldhave a profound effect, says David Bonaparte, president and CEO of Jewelers ofAmerica (JA). Last year, US imports from China included over $2.08 billion injewelry, $233.1 million in gem diamonds and $1.07 billion in gemstones,according to data from the US Census Bureau. As such, Bonaparte says thetariffs - which his organization has opposed - would impact natural andcultured pearls, diamonds, rubies, sapphires, emeralds, gold and silver jewelryparts, gold necklaces, and synthetic gemstones. "While China should be held accountable for its unfair tradepractices, and we must protect the intellectual property and competitiveness ofAmerican companies, imposing tariffs, which put the bulk of the burden on USconsumers and businesses, is not the answer," he asserts. Yet like Driscoll, he cautions against fearmongering. "Using a term like 'retail apocalypse' is not helpful to thehealth of our retail community," he states. "Retail is alive, and we don't needto push forth any unnecessary fear that could [erode] consumer confidence." JA is closely monitoring the issue, Bonaparte adds."We took a group of jewelers to Washington, DC, for our annual fly-in, and weasked lawmakers to push the Trump administration to make a deal and end thetrade war. We need to fight for our independent jewelers to ensure they cancontinue to prosper." The original version of this article was published in the August issue of Rapaport Magazine. It has been edited to reflect recent developments.Image: A cargo ship. (Shutterstock)