The US – China trade war is very much a hot button topic in our industry right now. This wonderful Robin Report article breaks down some of the biggest issues facing everyone from producers to consumers and beyond. Take a few minutes break and give it a read, it's very much worth it.
Retail: One Piece in the U.S.-China Trade War Puzzle
ROBINREPORT: SEPTEMBER 16, 2019 by RoxAnna Sway
Retailers are battening down the hatches, preparing for a tsunami of tariff-related price increases that are threatening their businesses and consumers’ pocketbooks. According to an article in The Wall Street Journal, $250 billion in goods have already been taxed with a 25 percent tariff, $107 billion in goods are set for September 1st tariffs of 10 percent, and additional tariffs on $156 billion in “certain goods”-electronics and clothing, including cell phones, footwear and toys-have now been delayed until December 15th (giving customers a break on holiday shopping and delaying major damage to corporate balance sheets until 2020).
A recent survey, conducted by Shopkick, indicated that American consumers are aware of tariff issues and have plans to react to rising prices. With 30,000 participants, the Shopkick survey found that 60 percent of respondents are aware of impending tariffs, 40 percent have already experienced price increases, and 44 percent say they will cut down on shopping to compensate. Many consumers plan to down-trade their shopping to less expensive stores: for example, switching from Macy’s to Target, from Walmart to Dollar Stores, or from Kroger to Aldi.
These days, it is not enough for retailers to study spreadsheets, closely monitor inventory and keep up with the competition and marketing trends. In order to successfully plan and manage their businesses, they must now be on the daily alert for presidential tweets, signaling the ever-shifting winds of trade agreements. The Trade War between America and China has dominated the news for some time now, with threats of tariffs and retaliatory tariffs, going back and forth, leading to an air of uncertainty for retailers and the economy in general.
Some American retailers and businesses are pulling out of China, others are establishing production centers in other Asian countries, including Vietnam and Indonesia, or increasing manufacturing in Mexico or India. Some businesses are doing a work-around, detouring goods through other Asian ports or through third parties, a practice called transshipment, hoping to avoid Chinese tariffs.
The Federal Reserve says that tariffs already in place are costing the typical American household an additional $831 a year and this figure will dramatically increase if the tariffs now planned through December go into effect. Retailers will be challenged to absorb these tariff-related increases in the costs of imported goods while maintaining affordable prices for their shoppers. Ultimately, U.S. households will feel the brunt of the pain.
China’s Belt and Road Initiative
To understand relations between the United States and China, it is imperative to understand China’s Belt and Road Initiative and its implications, globally, and for America.
In 2013, China’s President Xi Jinping announced an ambitious plan to create an unprecedented infrastructure and investment initiative stretching from east Asia to Europe. It was originally called the Silk Road Economic Belt and the 21st Century Maritime Silk Road. The actual Silk Road can trace its beginning all the way back to the Han dynasty in 206 BCE, but the legendary route only became well known after Marco Polo’s famous travels in around 1300 A.D. Polo forged trade routes from Italy and western Europe, through Central Asia and India, to China, a distance of more than 4,000 miles. Over time, China’s plan came to simply be called the Belt and Road Initiative (BRI). Eventually, it expanded to include other countries around the globe, including Africa and Latin America, giving China an opportunity to expand its economic, geopolitical (and perhaps even military) powers on the world stage. Read More