The move has potential to trigger price increases on a broad spectrum of promotional products.
President Donald Trump said Thursday that he plans to place tariffs of 10% on an additional $300 billion in Chinese imports – a move that could potentially drive up pricing on a gamut of promotional products in the months ahead.
Trump said the new tariffs would take effect on September 1st. With tariffs of 25% already attached to $250 billion in imported Chinese goods, the new levies would mean that virtually everything American businesses buy from China will be subject to tariffs.
The Dow Jones Industrial Average was 300 points lower in the immediate aftermath of Trump’s announcement. The S&P 500 was down 1.1%, while the Nasdaq Composite was off 1.1%, nearly wiping out an earlier jump of more than 1.6%. Markets continued the retreat Monday after China escalated tensions by allowing its currency to slip to an 11-year low against the dollar, while also threatening to hit U.S. agricultural products it bought recently with tariffs.
In a series of tweets, Trump alluded to several reasons why he was moving forward with the new tariffs, despite what he characterized as “constructive talks” toward a new U.S.-China trade deal that occurred at the end of July in Shanghai between negotiators for the world’s two largest national economies.
The looming new tariffs come as a surprise. In June, Trump and President Xi Jinping held a sidebar discussion at the G20 Summit in Japan and, ostensibly, agreed to a kind of truce in the trade war that’s been dragging on for more than a year. The easing of tensions led to the resumed face-to-face negotiations that occurred this week. But just as it happened in May when Trump upped the tariff rate on some $200 billion in Chinese products from 10% to 25%, the president seemingly out-of-the-blue decided to proceed with new tariffs, rattling markets, business leaders and consumer advocates.
“Trump’s announcement about additional tariffs on Chinese goods will hit American consumers the hardest,” said David Clement, North American Affairs Manager of the Consumer Choice Center, which represents consumers in more than 100 countries. “Given how interconnected the two economies are, it is ultimately American consumers who are going to be footing the bill for these new tariffs. Legislators need to better understand that tariffs on foreign products end up being a new tax for domestic consumers. Simply put, tariffs are taxes.”
Some – along with Trump himself – have indicated they believe Beijing’s negotiating tactic is to draw out talks until after the 2020 U.S. presidential election in the hope of brokering a deal that’s more favorable to China with a new American president. Conscious of this, Trump’s play on additional tariffs might be intended to catalyze China back into negotiating in earnest now, some analysts opine.
Regardless of the reasons, the new tariffs have the potential to impact almost every supplier and distributor in the promo products industry that buys and sells products imported from China. That’s virtually every company in the space, as the vast majority of promo products sold stateside are produced in China and imported. “This is pretty distressing for all of us,” Eddie Blau, CEO of Top 40 supplier Innovation Line (asi/62660), told Counselor.
Should Trump proceed with new tariffs on $300 billion in Chinese imports, then most every promotional product brought in from China would be subjected to tariffs. Products the administration is considering tariffing include electronics, drinkware, writing instruments, blankets, calendars, golf balls, and all manner of apparel – from T-shirts and track suits to yoga pants, bathrobes and baby garments. The list could go on and on.
“Clearly, the industry will see additional costs running through the system,” Jonathan Isaacson, president of Top 40 supplier Gemline (asi/56070), told Counselor. “How that is managed will be different by supplier and by product, but it is unlikely that any single organization has the ability to absorb this kind of increase.”
Blau foresees a similar dawning reality. “Industry suppliers will have no choice but to continue raising prices to offset the latest tariffs,” said Blau, adding that newly tariffed items in Innovation Line’s value-oriented line could possibly see price increases of 4% to 7%. He worries the trade war will intensify. “It’s likely another round of tariffs will be coming if the trade talks don’t take a more positive direction,” Blau told Counselor. “Industry professionals should be prepared for the latest 10% tariffs to increase to 25% before the year’s end.”
Should tariffs trigger price increases, some ad specialty executives fear the heavier price tags could curtail end-client investment in promo products. “If we have to increase pricing to the end consumer, we will start to push them into other avenues of spending for their marketing dollar,” Bob Herzog, CEO of Top 40 distributor Corporate Imaging Concepts (asi/168962), told Counselor.
More broadly, promo pros fear the tariffs could have a dampening effect on the U.S. economy that causes clients to pull tight the purse strings on their marketing budgets, thereby leading to reduced investment in branded merchandise. “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. “A recession could be imminent.”
Amid the trade war, the Trump administration has placed tariffs on $250 billion in Chinese imports. China has hit back with tariffs on $110 billion in U.S. goods. For the promo industry, import tariffs have led to price increases on levy-affected items, contributed to destabilizing the industry norm of annual pricing, and caused uncertainty that hasn’t been good for business, promo executives have said. It’s disrupted supply chains too, providing fuel to what was already a growing movement to diversify production into countries beyond China.
“Supply chains are complicated and generally are not easily moved,” Isaacson told Counselor. “With that said, there are suppliers, like Gemline, with contingency plans in place. For those that lack such plans, this is going to be difficult. Furthermore, while some categories can be moved reasonably quickly, some will be difficult to relocate.”
Isaacson and others noted that some industry firms could be feeling the pressure to continue to meet product safety and social compliance standards amid the supply chain disruption. “In times like this, systems around product and social compliance have the potential to get tested,” he told Counselor. “Again, for companies such as Gemline, who have robust systems and processes, this can be managed. For those that do not have the people and processes to verify, this could increase the risk to the industry around compliance-related problems.”