The Whole World Is Watching Our Trade War
While my partners were down at the NRF Big Show, I manned the virtual office fort, and took a call from California Apparel News looking for… yes: predictions for 2019.
As it turns out, the author ended up leading with the impact of impending tariffs. I predicted that these tariffs would cause price inflation in apparel, particularly in the low- and moderate-priced markets. I’d like to say I’m brilliant, but it’s not rocket science to make this prediction when retailers like Walmart have already said they’re treating this tariff as a new tax on consumers.
What I couldn’t have predicted, and likely neither could the author, was how viral this piece would go, particularly in far-flung places around the globe. I’ve gotten Google alerts from countries like India, Malaysia, and most recently Borneo (Borneo???).
The big question in my mind was, why did this simple and somewhat obvious statement resonate? I can see two reasons: 1) There is hope in these other countries that they might become alternative sources if they are excluded from the tariffs. Of course, it is not clear whether the trade war will go global or just be restricted to the US and China. No doubt folks in other places are hoping it will be restricted and they’ll get a chance to shine. 2) The US remains a place of complete fascination in the rest of the world. We remain market makers, and while China may usurp us as the biggest economic power, for now the combination of military and financial might keep the eyes of the world upon us. Europe has its own issues right now, but we are very important to Asia. We remain the market makers.
So, what does this mean for US Retailers and brand managers? Clearly, lining up other “just in case’ product sources is a good idea. Truth be told, I’ve been advocating for this for many years, even before the current situation manifested. One has to hedge one’s bets…always. I wouldn’t have done it this way, but that’s another story for another day, and this is not a political forum.
Still, under the covers, when you start putting all the current pieces together, it also suggests that sharing the pain of increased costs with consumers might be a better idea that just “passing it on as a tax.”
As I was quoted in the piece, much of apparel spending is discretionary. It’s rare that a consumer in the US “must” buy something new. Most of the time, it’s driven by desire with a touch of need. It wouldn’t take much to see those apparel sales, especially in markets I highlighted, plummet. Add to that more than a half million people not getting paid because of the prolonged government shutdown and you start getting a recipe for a lousy 2019. And that’s the last thing low- and moderate-priced clothing retailers need. They’re already hurting from a glut of competitors.
Of course, we hope that American and Chinese officials find a way to work this out, and I personally hope we do find a way to gradually add other sources to our all-China-all-the-time portfolios. But given the current environment of intransigence, we can’t really afford to wait. Sending your VP of Imports out on a sourcing hunt is a wise idea for most retailers and brand managers. And planning to share the pain is unpalatable, but likely necessary.
This could get ugly. But you can mitigate the problem. Now is the time to start contingency planning. Apparently places like India, Malaysia and Borneo are watching closely. And probably waiting for your call. When simple statements go viral, it’s time to sit up and take notice.