August 1, 2018

U.S. retailers, consumers to face severe pain if Chinese tariffs hit 25%, NRF says

ISM survey shows trade war threat already impacting supply chains.

By DC Velocity Staff

Reports today that the Trump administration will propose to more than double the size of proposed tariffs on $200 billion of Chinese imports led the National Retail Federation (NRF) to call the reported increase an "unacceptable gamble" with the U.S. economy's fortunes and the economic fate of its citizens.

The New York Times, citing three people briefed on the matter, said the administration wants to impose 25 percent tariffs on the $200 billion of goods from China, up from the 10 percent levy the White House had publicly proposed. The Times story cited the sources as saying that advisers to President Trump want him to send a strong message that the U.S. is serious about curbing China's alleged trade abuses, and that the administration is frustrated the Chinese have not moved to correct them.

The U.S. has already imposed tariffs on $34 billion of Chinese imports, and tariffs on an additional $16 billion in imported goods is soon to take effect. China has imposed tariffs on $34 billion of exports from the U.S.

The U.S. is most concerned about China's alleged theft of American technology and intellectual property that would be used to advance its "China 2025" initiative designed to make it a global leader in future technology deployment. However, the list of $200 billion in potentially impacted goods is dominated by consumer products that have nothing to do with the development of the Chinese program, according to NRF President Matthew Shay.

"These punitive tariffs will be passed along to U.S. consumers and will undo all the positive gains the economy has made in recent months," Shay said. "Quite simply, there has been no better example of cutting off one's nose in order to spite the face."

Concerns over a possible U.S-China trade war seeped today into the commentary accompanying the closely watched monthly manufacturing report published by the Institute of Supply Management (ISM). An executive of an unidentified U.S. wood products manufacturer said the tensions are "taking its toll on business activity, resulting in substantial reductions to new export orders." The executive said that China has "all but stopped taking orders, causing inventories to build up in the U.S." While domestic business is steady, it is too small to carry the load that export markets have retreated from," according to the comments.

A maker of transportation equipment said the company is "reviewing the business case for importing manufactured parts from China, as new tariffs will lead to increased costs that we will pass along to our domestic customers." 

The July survey reported solid growth in the various manufacturing metrics, though the pace of growth slowed from June's levels. The headline index, known as the Purchasing Managers Index, dropped 2 percentage points to 58.1 percent. New orders, production, and supplier deliveries also fell sequentially. Shortages of labor were reported, as were supply chain issues due in part to tight truck capacity.


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