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March 28, 2018

Industry Reacts to Potential US-China Trade War

Promo leaders maintain that tariffs could play a part in price increases, but are taking a wait-and-see stance.

By  John Corrigan

President Donald Trump confirmed suspicions last week by imposing tariffs on up to $60 billion worth of Chinese goods as part of an investigation into the theft of U.S. intellectual property. China has since responded by proposing its own tariffs on $3 billion worth of American-produced fruit, pork, wine and more than 100 other goods.

It looks like the beginning of a trade war, and the promotional products industry is in the middle of it. Tariffs on imported Chinese goods have the potential to raise the price of promo items sold in North America, as the vast majority of products available here continue to be produced abroad, particularly in China.

“It depends on how big a trade war this is,” says Craig Nadel, president of Top 40 distributor Jack Nadel International (asi/279600). “Right now it’s not much, and saber rattling won’t have too much of an impact. However, like most wars, once they start you don’t know where they’ll end up going.”

Nadel says trade wars hurt the promotional products industry in two ways: the economy and increased competition. “It’s true there are winners like the U.S. companies that compete with those overseas who will now pay a tariff,” Nadel says, “but the losers outweigh the winners. Secondly, think of the tariffs as a tax on products. We sell these items and compete within our industry, but we also compete with other forms of advertising like online ads. They won’t have to pay this tax, and one would expect that if there is a big trade war, our industry will lose some business to others who don’t have to build the tax into the cost.”

Podcast

In an exclusive interview with Counselor’s John Corrigan, Bamko (asi/131431) Senior Vice President of Strategic Partnerships Joshua White and Vice President of Operations Max Levavi discuss the tariff proposals between the United States and China and how they’ll impact the promotional products industry.​

Several industry leaders believe the tariff talk is merely political giants flexing their muscles, issuing threats that won’t have lasting effects. “My guess is that, like the steel tariffs, these tariffs will get dialed back once the dust settles and all the groups lobby for changes,” says Larry Cohen, president of Top 40 distributor Axis Promotions (asi/128263). “The tariffs do have the potential to impact prices, but I haven’t seen a breakdown of how they will impact specific products. I don’t think it will cause people to stop buying promotional merchandise, as these items play an integral role in companies’ marketing.”

David Nicholson, president of Top 40 supplier Polyconcept North America, agrees. “I would hope this is short-term posturing on behalf of the administration, but that remains to be seen,” he points out. “Prices will certainly rise as a result, but it’s not yet clear what specific categories of products will be impacted – nor how significant this will be for our industry. I don’t believe this will fundamentally change demand for promotional products, but it could shift spend between categories depending on relative impact.”

CJ Schmidt, president of Top 40 supplier Hit Promotional Products (asi/61125), credits Jonathan Isaacson of Gemline with ditching the trend of sending out large print catalogs in favor of posting online catalogs to make it easier to change prices at a moment’s notice, especially in situations like these tariffs. “As prices increase on apparel, the industry adjusts and is comfortable with it,” Schmidt says. “The same scenario needs to occur with hard goods.”

Trevor Gnesin, president and CEO of Top 40 supplier Logomark (asi/67866), has followed Gemline’s lead. “This has allowed us to make fast price changes up or down with no problems,” Gnesin says. “With the large price changes due to currency and China pushing pricing, this has allowed us to manage our margins, which have been eroded.”

In 2017, a total of $506 billion in goods were imported from China, meaning the tariffs represent over 10% of the total annual value of Chinese imports, noted Joshua White, BAMKO’s general counsel and senior vice president of strategic partnerships, in a white paper he crafted for LinkedIn.

“The potential fallout of the tariff policy includes likely cost increases for a number of different consumer goods and promotional products,” White said. “The tariffs, when combined with the weakening USD to RMB FX rate over the last year, will hurt many suppliers. It underscores the need for relationships with nimble suppliers with diversified manufacturing supply chains.”

White goes on to say that while BAMKO has a substantial China sourcing operation, it’s comparatively well-situated to navigate both market volatility and most supply chain disruptions that could arise on the global stage. “As a subsidiary of the Superior Uniform Group, a multinational corporation with over $260 million in revenue in 2017 alone, BAMKO has a unique ability to leverage a mature global sourcing operation that has scant few rivals in the industry,” he pointed out. “Together, BAMKO and Superior maintain a diverse set of product and service offerings that do not depend upon any single manufacturing stream.”

The Chinese Ministry of Commerce said its proposed measures retaliated against the Trump administration’s prior decision to impose tariffs on Chinese steel and aluminum. “China urges the United States to resolve China’s concerns as soon as possible, resolve bilateral differences through dialogue and consultation, and avoid damage to the broader array of Chinese-U.S. cooperation,” according to the online statement. Under the proposed Chinese countermeasures, American-produced fresh fruit, nuts, wine, seamless steel pipes and other goods would be hit by 15% tariffs, while another group of goods, including pork, would attract 25% tariffs, The New York Times reported.

Chinese high technology companies are in Trump’s crosshairs due to investment policies that effectively force U.S. companies to give up their technology secrets in exchange for being allowed to operate in the country. In addition to the tariffs, the Trump administration is also restricting Chinese investment in American technology firms. The U.S. Trade Representative’s office had previously presented Trump with a package of $30 billion in tariffs, but Trump told aides that it was not high enough, Politico reported.

“Most everybody agrees that the rules for trade need to be transparent and fair,” says Jonathan Isaacson, president of Top 40 supplier Gemline (asi/56070). “However, most people also agree that trade wars do not really benefit anybody long-term. Regardless of the trade issues, pricing is going to increase due to rising inflation and the declining value of the dollar.”

Joseph Fleming, president of Top 40 supplier Hub Pen Company (asi/61966), remains optimistic that tensions will cool off and mutually beneficial bilateral trade will continue between both countries. “I firmly believe America needs China and China needs America, and our leaders will find a way to work things out,” Fleming says. “I don’t believe this is the beginning of the end for promotional products from China – not by a long shot.”