More new tariffs are bad news for the US retail sector, especially as the latest round seems to extend the tax to a vast array of consumer goods.
US president Donald Trump on Friday proposed a further US$267 billion in tariffs on goods made in China – on top of a $200 billion list about to take effect.
“Many retailers will now be faced with a difficult choice of whether to pass the cost increases across to consumers or to take a hit on their margins,” says GlobalData MD Neil Saunders. “The exact response will vary from retailer to retailer but, in our view, both strategies are likely to be used.”
Saunders says the pain for retailers is real, not least because it comes amid a raft of other cost increases including more spending on technology, elevated logistics costs, higher gas prices, and rising labor expenses.
“In short, additional tariffs are the last thing the retail sector wants.”
But he adds “fortunately, the consumer is currently in a position to cope with some mild rises in retail prices”.
“However, a rise in prices across the board will likely result in a decline in retail volumes over the longer term, which will be unhelpful to the sector.
“Shifting production is a further option for some retailers, and many have been looking at this. However, given the extensive manufacturing capacity in China and the difficulty associated with quickly shifting supply chains, this can only be achieved over a period of time and will, in itself, result in some additional expense.”
Saunders says that ultimately, “while the president may have a sound political motivation for trying to level the playing field in world trade, these policies will bring at least short-term pain to retail and to the consumer”.
On Saturday Trump criticised tech giant Apple in a tweet after the company said it would be forced to raise prices for many of its products, including headphones and its Apple Watch (but not, as yet, its iPhones).
Trump tweeted: “Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now.”
