How Can Retailers Take Advantage Of China Trade War Truce?
The Trump Administration announced last month that it would hold off on imposing additional tariffs on approximately $200 billion in Chinese goods, although tariffs imposed in 2018 remain in effect. While retail industry groups such as the National Retail Federation welcomed the news, they also are seeking more permanent solutions, including legislative action. Tariffs Hurt the Heartland, an industry group that the NRF supports, released data in February showing that tariffs cost U.S. businesses $2.7 billion in November 2018 alone.
The Retail TouchPoints editors shared their thoughts on what retailers can do to take advantage of the trade truce now while also hedging their bets for an uncertain future.
Adam Blair, Editor: It’s certainly good news that President Trump has indefinitely delayed the imposition of additional tariffs on Chinese goods. It would be better news if there was some indication that the administration had an actual goal for its trade policy, for example addressing China’s theft of intellectual property. In the meantime, though, retailers should take advantage of this temporary spell of sanity to front-load their China-based supply chains for holiday 2019, while at the same time pursuing a two-pronged strategy. First, start costing out the impact of higher tariffs if trade talks break down again, to see if there are ways to mitigate their impact on the bottom line (both their own and their customers’). Second, ramp up investigations into alternative sources of supply from countries that are less likely to be subject to tariffs. There’s not a moment to lose.
Glenn Taylor, Senior Editor: At this point the tariff delay still appears like it’s only pushing back the inevitable, so hopefully retailers will still act as if they are going to be imposed. The worry about continued price inflation puts retailers in an uncomfortable spot. They could try to buy products ahead of time, thereby avoiding higher prices when the tariffs do go into effect and keeping consumer prices low for the time being. In that scenario, retailers would have to deal with plenty of uncertainty regarding future demand and risk being inundated with either too much product or not enough. There were retailers that did this last year, front-loading deliveries of 2019 product into the fall of 2018 before the originally planned Jan. 1 rate increase. In fact, imports at major U.S. retail ports grew by more than 13% to a record 2 million containers in October 2018, according to data from NRF and Hackett Associates. If anything, many retailers and distributors will have to be more flexible with warehousing options, including the use of “pop-up” distribution centers and even acquiring temporary spaces.
Bryan Wassel, Associate Editor: The delay in additional tariffs may give retailers some breathing room, but the only way to use this to their advantage is to prepare for the future. Retailers need to be on the lookout for new markets, both as a source of supply and a place where they can sell goods, and the best time to start doing so is when they aren’t burdened with the uncertainty of extra tariffs being imposed. Of course, finding the right partners is easier said than done — the Trump administration is ending a preferential trade program with Turkey and India, and India’s e-Commerce legislation is already making the country a tricky market for U.S. retailers to navigate. The best way forward for retailers may be diversification. If they do business with a wide array of countries, taking a hit from one nation will have a smaller impact on the overall enterprise.