Tariffs: And What Is The ‘Or Else’, Exactly?
We’re back to threatened tariffs on goods made in China yet again. According to CNN, some companies are moving production to other parts of Asia like Vietnam, Taiwan, Bangladesh and South Korea. As a matter of record, a certain amount of product has been made in those countries for at least a decade – since China started to become more developed and therefore more expensive. So what’s the plan? What’s the “just in case?”
While some savvy retailers are moving production back to the Americas (I wrote about the American Apparel Producers Network back in May, and in fact, we are likely going to partner with the group for our annual Supply Chain survey), at the moment, at least as far as fabric is concerned, China remains the innovative world leader.
And that brings me to a funny memory and a not-so-funny prediction for the holiday and spring 2020 seasons. First, I’ll review the funny memory.
When I was CIO of the now dearly departed Domain Home Furnishings, our home deliveries were outsourced to a company with headquarters in Jersey City. It still exists, so I’m not going to name it. It is very big in the white glove delivery service and depending on the size of the retail client, will either use its own branded- or the retailer-branded trucks to do the deliveries.
We weren’t happy with our service in Jersey City – there were a couple of much larger clients that seemed to be getting more attention out of that co-mingled facility. So we decided we’d get a facility of our own nearby, and have their people staff it and continue doing deliveries for us.
Long and short, we weren’t really happy with our service levels, and my boss at the time would become apoplectic over missed time windows. And then he’d threaten to do something. I would say over and over again – “Or else what? We’ll go back to Jersey City?” We couldn’t afford to do the thing ourselves, and this company had the area pretty well locked up. Truth is, we HAD NO or else.
It became a running joke: “Or else we’ll go back to Jersey City.”
So what’s the “or else” if those tariffs go through? Get less innovative fabric? Make simpler electronics? Most likely, retailers and brand managers will continue to source goods from China, and pass the tariffs along to consumers.
And that brings me to my not-so-funny prediction. If these tariffs happen, they’re going to make a real mess of the holiday season and spring 2020. A lot of the fall product is on the water or here already, partly in concern over those tariffs coming. But spring? Nope. The list of products on the tariff list is long. From the CNN piece:
Smartphones, laptops and tablets, desktop computers, video game consoles, TVs and digital cameras are all on the tariff list.
About 42% of apparel sold in the United States would be hit with the tariff, as well as nearly 70% of all footwear, according to the American Apparel & Footwear Association.
New Balance, for example, has warned that the tariffs could even make the sneakers it manufactures in the United States more expensive because it needs to import component parts from China that are no longer made domestically.
The tariff could also raise the price of some of the upcoming holiday season's most popular toys, which are typically shipped into the country in August and September, said Toy Association President Stephen Pasierb.
About 85% of the toys sold in the United States are made in China, including the top-selling L.O.L. Surprise doll. Toy giant Hasbro (HAS) has already warned that it would have to raise prices if the tariffs go into effect.
This is not a pretty picture to contemplate: all in the name of #winning. The soybean farmers can tell you what tariff-based winning looks like.
Now, I don’t think it will concern me if the price of a pair of socks goes up from $5.00 to $5.50. But if a TV goes from $600 to $660, I think I would care. Now imagine that for all those Walmart shoppers, suddenly seeing their market basket go up in price by 10% or more. You can be sure that’s going to hurt the retail industry. Badly.
We created this lopsided supply/demand balance with China. It needs to be resolved, but not by fiat, and certainly not with an immediate trade war.
My best advice? Bring in your goods soon. And talk to your Congressperson. This is not going to work well at all.