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January 02, 2020

Trump Plans to Sign ‘Phase One’ Deal With China

The deal will include a scale down of some import tariffs that have impacted the promo products industry.

By  Christopher Ruvo

President Donald Trump this week said he intends to sign a “Phase One” trade deal with China on Jan. 15 at the White House.

The move has implications for the domestic promotional products industry, which has dealt with product price increases, supply chain disruption and more as a result of the import tariffs that Trump has levied on upwards of $370 billion in Chinese goods during the nearly two-year-long trade dispute between the world’s two largest national economies.

For promo pros, perhaps the most relevant recent news is that, as a result of the Phase One deal, Trump plans to reduce the tariff rate on an estimated $120 billion in China-made imports from the current 15% to 7.5%. Those levies, which went into effect Sept. 1, 2019, pertain to many items sold in the promotional products industry, including T-shirts, a range of outerwear, pullovers, sweaters, certain writing instruments and more. A full list of products slated for a tariff reduction is here.

The expected rate reduction has some promo professionals hopeful that product prices that rose as a result of the tariffs will eventually be reduced. Nonetheless, as both suppliers and distributors have pointed out, any possible reduction on tariff-affected promo products isn’t likely to happen overnight. One reason is that suppliers will still have to sell through inventory brought in under the 15% rate. Furthermore, there’s lingering uncertainty about when exactly the reduced 7.5% rate will take effect. Complicating matters more is the fact that tariffs of 25% remain in place on about $250 billion of additional Chinese imports, which include a range of items sold in the promo space, such as certain types of bags, select drinkware, and tech and accessory items.

President Trump

Given such issues, some ad specialty suppliers are expecting to raise prices, at least in the short term. In a recent candid note to distributor customers, Top 40 supplier Polyconcept North America (PCNA; asi/78897) said that 50% of its product offerings continue to be affected by tariffs. “We have been successful in covering a portion of the tariff costs through negotiations and moving to alternative countries,” PCNA President David Nicholson said in the note. “However, we remain in the unfortunate position of having to make another adjustment to our Q1 2020 prices to off-set the residual tariff costs. This increase will be relatively modest, averaging around 2%. Assuming no change to the current situation, we do expect greater price stability throughout the remainder of 2020.”

While Trump has called the Phase One deal comprehensive, analysts have pointed out that it does not resolve certain core issues at the heart of the trade war – issues U.S. negotiators have indicated will be addressed in the “Phase Two” discussions. So, while suppliers and distributors alike have expressed optimism that the Phase One deal is a step in the right direction toward normalized trade relations with China, questions remain about how things will play out. That uncertainty could create business challenges in the greater U.S. economy and within the domestic promo industry, which imports the vast majority of products sold stateside from China. For instance, the trade war has, according to a Federal Reserve study, contributed to job loss in the manufacturing sector – an industry to which promo products firms sell.

Counselor, ASI’s flagship publication, has been covering the impact of the U.S./China trade war on the promotional products industry. For more coverage, visit this page dedicated to the topic.