On Aug.1, President Trump announced a 10% tariff on an additional $300 billion of Chinese goods not subject to previous tariffs levied by the United States during the protracted trade war. Last Friday, the president announced that the fresh tariffs would be hiked to 15%. According to the American Apparel and Footwear Association, the most recent list includes $51 billion worth of apparel, footwear and textiles.
In the week following the initial announcement, the administration announced it would delay the implementation of many of the items on the new list until December in an attempt to mitigate the negative impact on the coming holiday shopping season. However, the vast majority of apparel items on the new list were not deferred, and will be subject to the new 15% duty beginning Sept. 1. According to a recent survey from the National Retail Federation, “clothing and clothing accessories” account for 53% of the items on consumers’ wish lists for the holiday season this year.
Margin pressure expected for apparel makers
The new tariff could put significant margin pressure on companies throughout the supply chain in the apparel and footwear sectors. RSM clients have previously suggested that a 10% tariff can be spread throughout the supply chain to mitigate impact and limit the pass-through to customers in the form of higher retail prices. However, the apparel and footwear sector was already subject to longstanding tariffs instituted prior to the start of trade tensions between the United States and China, and this latest tariff is 15%.
“Apparel and footwear are already among the most highly tariffed items,” Stephen Lamar, executive vice president of the AAFA, told RSM in a recent discussion. “In 2017, before this trade war began, our industry represented 6% of all imports, yet generated more than 51% of all tariffs collected by the U.S. government.”
“Apparel and footwear are already among the most highly tariffed items,” Stephen Lamar, executive vice president of the AAFA, told RSM in a recent discussion. “In 2017, before this trade war began, our industry represented 6% of all imports, yet generated more than 51% of all tariffs collected by the U.S. government.”
While consumer spending has held strong through the first half of 2019, the uncertainty surrounding the economy at home and abroad may eventually dampen sentiment. Meanwhile, today’s consumer is price sensitive and has shown a penchant for discounts. National Retail Federation data shows that the majority of shoppers were looking for discounts and sales before they made purchases during the back-to-school season that began earlier this month.
