Removing or reducing tariffs on imports from China could potentially contribute to price reductions in the promo industry down the line, but that’s far from a given.

Meanwhile, nixing or lessening the levies could also compel at least some suppliers to increase their sourcing from China, counteracting a trend of recent years that’s seen firms move more production out of that nation due to the tariffs and COVID-related issues.

Such are the assessments of supplier executives in the promotional products industry as talk of removing or reducing the tariffs heats up at the federal level.

U.S. Deputy Treasury Secretary Wally Adeyemo said on Tuesday, May 31, that President Joe Biden’s administration is considering cutting tariffs on products imported from China.

Confirmation that at least some tariffs are up for potential reduction or removal comes as the administration looks for ways to curb runaway inflation, which has remained at near 40-year highs in the United States for months.

“We’re actively considering what we do with regard to those tariffs,” Adeyemo said in an interview. “I think the important thing for every American to know is that the president is committed to doing everything he can to bring down costs in a sustainable way.”

Effects on Promo Pricing

Others in the administration, including Biden himself, have also recently said they are reviewing the tariffs, which former President Donald Trump implemented on hundreds of billions of dollars’ worth of China-made imports in response to what he characterized as unfair trade practices by China. The majority of items sold in the $23.2 billion North American promotional products industry are produced in China.

Tariffs on promo imports, which include both apparel and hard goods, have contributed to price increases on industry-sold products in recent years. If the levies were reduced or removed, could that lead to price reductions on promo products?

President Biden has confirmed that his administration is considering easing or removing the tariffs on China-made imports. The levies have contributed to price increases on #promoproducts. Reaction from promo leaders https://t.co/WkhbRAAS16 @ASI_MBell @Tim_Andrews_ASI

— Chris Ruvo (@ChrisR_ASI) May 17, 2022

The short, perhaps unsatisfying answer is maybe, but not necessarily, and a lot could depend on which tariffs are changed and to what degree, according to industry executives.

Dilip Bhavnani, chief operating officer at Top 40 supplier Sunscope (asi/90075) and a member of Counselor’s Power 50 list of promo’s most influential people, states that if the current 25% tariffs on bags were removed, for example, it will “have a major impact on a large promotional products category,” potentially leading to lower costs for importers and thus possibly reduced prices on branded bags for distributors and their end-clients.

Others don’t think the arithmetic is that simple, saying that even removing all tariffs might not translate to significant relief on product pricing.

Andrea Lara Routzahn, chief merchant at alphabroder (asi/34063), promo’s second-largest supplier by revenue, explains that had the tariffs been lifted prior to the COVID-19 pandemic, then product cost relief would have been “readily quantified and commercialized in pricing strategies.”

However, COVID struck, triggering a wide range of supply chain disruptions and related cost pressures that have contributed to multiple rounds of price increases on products sold by a broad swath of industry suppliers. Getting rid of tariffs alone isn’t necessarily enough to offset all that, Routzahn says.

“While tariff relief would certainly be welcome, it will likely not have a unilateral impact to the industry,” Routzahn says. “Companies are still operating within various unsettled pricing dynamics that could easily overtake any tariff savings in the short term.”

“If they removed the tariffs, it would take at least five months to filter through to lower prices as everyone has gone deeper in inventory than normal.”Trevor Gnesin, Logomark

Meanwhile, some executives say that even if certain modest price reductions could be realized because of tariff removal, they likely wouldn’t take effect immediately. Suppliers, these executives explain, have built inventory to higher levels than before the pandemic to protect against stock shortfalls that can result from COVID-related importing challenges and would have to sell through that inventory, which was bought with tariffs in place, before any pricing changes might be possible.

“If they removed the tariffs, it would take at least five months to filter through to lower prices as everyone has gone deeper in inventory than normal,” says Trevor Gnesin, CEO of Top 40 supplier Logomark (asi/67866) and a Power 50 member.

Melissa Ralston shares a similar assessment. “Any price adjustment wouldn’t be realized until new inventory arrived – bought without the tariff implications – and it wouldn’t be an automatic reduction because it would be tied to what happens with freight and raw material increases,” shares Ralston, chief revenue officer at Top 40 supplier Koozie Group (asi/40480) and a Power 50 member.   

Implications for Industry Sourcing

The China tariffs greatly accelerated a movement by suppliers and distributors that source directly from abroad to geographically diversify their supply chains by having more product manufactured in international locations outside China.

Could removing the tariffs compel promo suppliers and other importers to return more production work to China? Some think so.

“If the tariffs were removed, most companies would move a good amount of their production back to China, which would cause pressure on the Chinese factories, who in turn would raise their prices,” Gnesin says.

“With the potential reduction/removal of tariffs, we would look hard at China again for production, which allows for faster lead times.”Dilip Bhavnani, Sunscope

Depending on which tariffs are removed/reduced, Bhavnani also foresees a potential return of more manufacturing to China.

“Our sourcing, which used to be predominately from China, has dropped to almost 50% from there now,” he says. “With the potential reduction/removal of tariffs, we would look hard at China again for production, which allows for faster lead times. Transit times for sea vessels from China are the fastest of any Southeast Asian country, and a lot of raw material comes from China, even when the finished product isn’t produced there.”

Others don’t think there’ll be a mass return of promo manufacturing work that was removed from China (or set up elsewhere to start) back to that nation. “We do not anticipate that reducing/removing tariffs would drastically change our sourcing practices,” says Pierre Montaubin, Koozie Group’s senior vice president of product management and sourcing.

Routzahn and other sourcing leaders at alphabroder say sourcing strategy with China is multi-faceted, with the tariffs being only one of many factors in determining what’s produced there.

“Any industry with a sourcing network heavily weighted in one geographic region is at risk somewhat,” says Routzahn. “The pre-pandemic tariffs and the subsequent pandemic supply chain disruption has put smart companies on an irrevocable path towards sourcing decentralization.”

A Tough Call for Feds & Economists’ Take

What to do with tariffs is a bit of a conundrum for the Biden administration as it attempts to balance what some believe may be the short-term benefits of removing them – reduced prices for importers and thus, hopefully, also consumers – against the long-term goals of the levies, which aim to get China to play fair in the international trade game.

U.S. Treasury Secretary Janet Yellen has called for cutting what she’s described as “non-strategic” tariffs on consumer goods. “Some of the tariffs that were imposed by President Trump in retaliation for China’s unfair trade practices, some of them, to me, seem as though they imposed more harm on consumers and businesses,” Yellen says.

Meanwhile, U.S. Trade Representative Katherine Tai is leery of touching the levies, arguing that they’re an important tool the U.S. has to help force China to meet trade commitments and end economic practices that give that nation an unfair advantage in the global marketplace.

“Some of the tariffs that were imposed by President Trump in retaliation for China’s unfair trade practices, some of them, to me, seem as though they imposed more harm on consumers and businesses.”Janet Yellen

There’s also debate among economists as to what impact tariff cuts would have on inflation.

“Tariffs introduced over the past five years were not large enough, and the timing of them is completely inconsistent with them being a cause – or plausible significant solution – for today’s inflation,” writes the Economic Policy Institute, a Washington, D.C.-based nonprofit that conducts economic research, in a recent analysis. “Rolling back or even eliminating U.S. tariffs would have only a minimal and transitory impact, at best, on price levels and inflation in the United States.”

Others, including The Wall Street Journal editorial board and the Peterson Institute for International Economics, have advocated for removing the tariffs, saying that doing so would help reduce inflation. For instance, the Peterson Institute has said eliminating tariffs could lead to a 1.3 percentage point reduction in consumer price index inflation. The consumer inflation rate has been above 8% in the U.S. in recent months.

“President Biden is deploying gimmicks to try to show the public that he’s fighting 8.5% inflation, but here’s something he could do that really would help: ease President Trump’s destructive tariffs,” the WSJ editorial board has written. “This isn’t a panacea. But while prices keep rising, the feds could at least stop making products more expensive on purpose.”