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September 05, 2019

Tariffs On $112 Billion In Chinese Imports Take Effect

The tariffs will likely cause price increases on duty-hit promotional products. New trade talks are planned.

By  Christopher Ruvo

While the U.S. and China are now planning new trade deal talks for October, tariffs of 15% on $112 billion worth of Chinese imports nonetheless went into effect over the weekend. The duties won’t immediately trigger new price increases on levy-impacted promotional products, but they will likely propel price hikes in the months ahead as ad specialty suppliers replenish stocks with new imports subject to the tariffs.

“The ground is constantly shifting and it’s impossible to predict where this is headed,” David Nicholson, president of Top 40 supplier Polyconcept North America, recently told Counselor. “The obvious outcome of the latest tariffs will be additional price increases across most categories in the industry.”

Still, PCNA and other scrupulous industry suppliers say they’re doing everything they can to minimize the impacts. Top 40 supplier iClick (asi/62124), for instance, says it’s committed to keeping prices stable through 2019.

“There has been a lot of confusion surrounding additional tariffs being placed on most promotional items beginning on September 1, 2019,” iClick President Jeff Hall said in an email to clients. “We want you to be assured that, regardless of the outcome, iClick will hold prices through the end of this year. Our team will continue to evaluate the tariff situation as it evolves and communicate as necessary. As always, we remain fully committed to delivering the customer service and value you expect from iClick.”

In addition to grocery goods, sports equipment and diapers, promotional product-related items on the list of $112 billion in imports now subject to a 15% tariff include various types of T-shirts, which as a product category account for 15.1% of annual distributor sales, Counselor State of the Industry research shows. Other items include various types of pens, pencils, sweaters, pullovers and jackets. In fact, 87% of textiles and clothing the United States buys from China and 52% of shoes are now subject to import taxes. “The effect on our market will depend on the category but, at this point, as an industry, we are still dealing with the issue of tariffs,” Jonathan Isaacson, CEO of Top 40 supplier Gemline (asi/56070), recently told Counselor.

The promo industry – and the rest of the world for that matter – received a ray of hope in the trade dispute early Thursday when U.S. and China officials announced they plan to hold trade talks in Washington D.C. in October. The Wall Street Journal reported that Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke by phone on Thursday morning Beijing time and agreed to the meeting. Members of the negotiating teams for both sides will reportedly lay the groundwork for the meeting over the next few weeks. Still, economic analysts are skeptical that a deal will be struck next month. “The path to even a modest deal is strewn with many obstacles, as neither side is likely to pull back any of the existing trade sanctions without substantial concessions from the other side,” Eswar Prasad, a China expert and economist at Cornell University, told the Journal.

As it stands, promo’s tariff trouble hasn’t hit bottom yet. On Oct. 1, President Donald Trump plans to increase duties in place on another $250 billion worth of Chinese imports from 25% to 30%. Come Dec. 15, Trump intends to impose tariffs on nearly $200 billion worth of additional goods imported from China. At that point, virtually everything the U.S. imports from the world’s second largest national economy will be subject to tariffs.

That’s significant for the domestic promo products industry because the vast majority of products sold stateside are produced in China. To date, the fallout has included rising prices on certain affected items and destabilized pricing in an industry that had long stuck firm to annual prices. Tariffs have also compelled industry companies to re-evaluate their supply chains with an eye to moving at least some production out of China. Concerns over product safety and social compliance have also arisen in relation to tariffs.

The trade war between the U.S. and China has been in swing for more than a year-and-a-half. China has counteracted U.S. measures, in part, by enacting tariffs on American imports. In late August, Beijing announced it would enact tariffs on virtually all imported U.S. goods that haven’t already been slapped with punitive tariffs. Chinese tariffs ranging from 5% to 10% on a portion of $75 billion U.S. goods then went into effect Sunday. Beijing has also said it will be raising duties on American items already subject to tariffs and resuming levies on U.S. automobiles (25% rate) and auto parts (5%). Furthermore, China says it will sue the U.S. over America’s latest round of tariffs on Chinese products.

Some macro data suggests that the trade war and its related tariffs are starting to drag on the U.S. economy. In August, the University of Michigan’s closely-watched Survey of Consumer Sentiment posted its largest monthly decline – 8.6 points -- since December 2012. Tariffs were a key factor in the plummet. Also, as reported this week, the U.S. manufacturing sector contracted for the first time since 2016 in August. Again, the trade war was an important factor. Manufacturing’s weak showing caused stocks to drop and stoked fears of a recession.

“If the tariffs stick around, I could see everything really taking a hit in Q4 – retail, food, travel, promo,” Jason Lucash, SVP of marketing and product development at Top 40 supplier HUB Promotional Group (asi/61966), told Counselor earlier this year. “A recession could be imminent.”