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News September 24, 2018

U.S. Hits China With Largest Round of Tariffs

China retaliated with a tariff on certain American goods.

By  John Corrigan

In A Nutshell:
- The 10% U.S. tariffs target thousands of items, including auto parts, luggage and seafood.
- The tariff battle could prove challenging for the U.S. promotional products industry.

The United States has launched the third round of tariffs in its trade war with China, officially taxing an additional $200 billion worth of Chinese goods. U.S. customs officers started imposing the 10% tariffs on Monday, and they’re slated to rise to 25% by the end of the year. Thousands of Chinese products have been targeted, ranging from auto parts to luggage to seafood to industrial machinery, The Wall Street Journal reported.

In an exclusive interview with Counselor’s John Corrigan, Bamko's Joshua White and Max Levavi discuss the tariffs imposed by the US and China and how they’ll impact the promotional products industry.

As it has done in the past, China retaliated with tariffs ranging from 5% to 10% on $60 billion worth of American goods. More than 5,000 U.S. goods will be affected, including meat, nuts, alcoholic drinks, chemicals, clothes, machinery, furniture and auto parts, CNN reported. President Donald Trump previously threatened to impose tariffs on an additional $257 billion worth of Chinese imports if Beijing retaliated.

In a white paper published by state news agency Xinhua on Monday, China’s State Council accused the Trump administration of “trade bullyism,” arguing that the “America First” policy “has brazenly preached unilateralism, protectionism and economic hegemony, making false accusations against many countries and regions, particularly China, intimidating other countries through economic measures such as imposing tariffs, and attempting to impose its own interests on China through extreme pressure.” China also canceled scheduled trade talks with U.S. officials after the additional tariffs were announced, The Wall Street Journal reported.

Since July, Trump has imposed tariffs on nearly half of the Chinese goods imported to the U.S., which last year were valued at $505 billion. If he follows through on his next threat, all Chinese imports to the U.S. will be taxed. Trump has pushed for these tariffs as part of an intellectual property investigation of Chinese high-technology companies. As for China, the total amount of U.S. products subject to Chinese tariffs comes out to $110 billion, which is 85% of U.S. goods that entered China last year.

A prolonged trade war between the U.S. and China could prove challenging for the promotional products market, as prices on Chinese-made imported goods would increase. Industry firms – as well as retailers – would have to decide whether to take a hit in their margins or pass the added cost on to buyers.

“We won’t know the impact on our own product assortment until the USTR (United States Trade Representative) evaluation is complete, but unfortunately, we do know that BIC Graphic will have to pass on a price increase to our customers as a result of these tariffs,” David Klatt, CEO of Top 40 supplier BIC Graphic (asi/40480), told SGR.

In a letter to distributor partners, David Nicholson, president of Top 40 supplier Polyconcept North America (PCNA), addressed the potential impact of the tariffs, vowing that all PCNA divisions will honor current 2018 published prices through the remainder of the year.

“However, we will be providing two prices on all quotations for WorldSource projects (long lead time, direct-import orders),” Nicholson wrote. “The second price will reflect the product cost should the tariffs go into effect. “2019 pricing will be published in late November and will be available for download from PCNA.com. Hopefully, all will be resolved successfully, but regardless of the outcome, we are committed to minimizing the extent of the increases as much as possible.”

All suppliers are probably having similar conversations, says Paul Lage, president of Top 40 supplier IMAGEN Brands, parent company of Crown Products (asi/47700) and Vitronic (asi/93990). “Tariffs don’t have a significant effect right now – it’s really more about the unknown,” Lage says. “Our industry is subject to what happens in the geopolitical arena. We’re starting discussions to answer ‘what ifs’ and to try and figure out what we should do.”