Tone-Deaf China Tariff Strategy May Be Ended By President Biden

In retail America, consumers have no patience for price increases.

Politically, however, consumers generally will not blame retailers for price hikes. Interesting as it may seem, shoppers are more prone to direct their angst elsewhere, and will often blame government for their shopping ills (like the high price of gasoline).

In pre-COVID days, retailers warned the former Trump Administration that China tariffs would be a disaster – one that would eventually hike prices and disrupt supply chains. Sadly, the Trump Administration went forward and created an alternative reality about what was needed to rein in China, and they created a new Trumpian version of “The Art of the Deal” when they decided to use tariffs to stop China’s 7 deadly sins (as laid out by former Trade Advisor Peter Navarro).

When the initial tariff talk grew louder, retailers and brands flocked to the White House – to alert the Trump Administration that tariffs would elevate prices and product diversion from China would likely complicate an already complex supply chain. Obviously, the warnings were not heeded, and today America is experiencing the results of what Team-Trump believed was a well-intentioned strategy. When China did not live up to the Phase One Trade Agreement, former President Trump probably realized the strategy wasn’t working. However, since the deal was an excellent win during an election year, rather than admit failure – the former President played it out. However, given enough time, there is little question that he would have changed course. Unfortunately, when Team-Biden took over from Team-Trump, they wanted to appear strong on China which clearly has made America much weaker on trade.

Inflation has been rising in advance of the upcoming round mid-term elections and signs of creating some sort of a China truce (to ease inflationary pressure) have been emanating from the White House. For an Administration that does not leak information, trade policy wonks and China watchers already seem to know a lot. On July 5^th, Treasury Secretary Janet Yellen held a call with China’s Vice Premier Lui He and it was said that tariffs were not discussed, but many feel that that the call was related. While some retailers will be absolutely thrilled that potential China relief is in the wind, many see this as the four-year anniversary of the ultimate retail train wreck, and the end of an disastrous issue that they had predicted. Tariff-removal might be considered a win for USA retail but, at this point, it’s only a win if one is willing to forgive all the bankruptcies, inflation, and supply chain problems that happened along the way.

With White House discussions still going on, it is possible that only some of the tariffs may be directly removed, while others could face a new federal “exclusion” process in order to be exempted. In addition, there will probably be a new 301-tariff investigation that would target specific sectors of the Chinese economy. Obviously, fashion retailers (who are already highly tariffed) hope that clothes, shoes, and accessories would be directly and completely removed from the list. In terms of product exclusions, anyone who understands the term “process” will not be happy with either the time or money required to handle the effort of getting products placed into the proper exclusion category.

Truth be told, since the beginning of their Administration, Team-Biden has consistently been tone-deaf to retail price concerns – even as commodity costs escalated with little relief in sight. All this increased cost activity, coupled with genuine shortages from shutdowns, has continued to fuel the inflation meter. While the Biden Administration is arguing internally about preserving jobs in America, it became clear that they pumped too much cash into the economy, and the dollar purchases less than it did a year ago. Team-Biden dug very deep into a failed Trumpian tariff strategy – which is one that former President Trump would have surely dumped by now. It is also important to remember that there was hope for change when Candidate Biden said: “We’re going about China in the wrong way.” However, in the end, it came down to (once again) the internal battle of the nationalists versus the globalists.

Washington based – Americans for Free Trade – has a Tariff Misery Impact List and the group say that it is costing American’s $3.8 billion a month for the China 301 tariffs imposed by former President Trump and continued by President Biden. The former President liked to say that China was paying the tariffs (when they were not) and during the Presidential debate in October 2020, it was former President Trump who said about the tariffs: “China is paying billions and billions of dollars, and you know who got the money? Our farmers. Our great farmers.”

The truth behind the farmer statement was that China issued their own retaliatory tariffs against their U.S. imports, and our exports to China fell significantly from about$130 Billion in 2017, to $120 Billion in 2018 (first year of the tariffs), to $106 billion in 2019 and then trended up again in 2020 after the China Phase One Agreement was signed. The American farming community lost significant exports and had to be bailed out. The tariffs just didn’t work. They didn’t work when they were created by Smoot-Hawley in 1930 (in time for the great depression). They didn’t work for President Bush when he tried to use them on steel in 2002, and they didn’t work for President Obama when he tried them on tires in 2009.

Trump’s former Trade Advisor Peter Navarro talked about China’s 7 deadly sins as a base for establishing the tariffs. He listed: transfer of technology, theft of intellectual property, product dumping, State-owned-enterprises, currency manipulation, cyber-attacks, and deadly Fentanyl. While the issues presented by Navarro were real, doing a complete review of the entire time-period, it is clear that tariffs did little to resolve these problems.

It’s also not fair to blame all the trade issues on Team-Biden, but they did have 19 months to change the direction and decided to stay-the-course. COVID shutdowns certainly affected the supply chains, but so did all the re-routing of merchandise away from China, and all the feeder vessels that were added to avoid the tariffs. In addition, Congress failed to renew important trade deals like the Generalized System of Preferences Program and the Miscellaneous Tariff Bill – that would have helped reduce the extra burden of tariffs in countries other than China. Some retailers decided to look to Central America for relief, but found it was difficult to get the raw materials and that was a hindrance. Some looked to Africa (under the African Growth and Opportunity Act), but the Biden Administration pulled the AGOA plug on Ethiopia, and that single action scared retailers away from using the AGOA program.

The mandate from Team-Biden has always been to compete with China but, per the recently signed and implemented Uyghur Forced Labor Prevention Act, it might be easier for retailers to leave China than to face the new law’s rebuttable presumption clause (targeting inbound containers). The law basically says that you are presumed to be guilty of using forced labor and have 30 days to respond. That being said, China still maintains a 37.25% apparel share of the USA market – so leaving isn’t something easy to do, especially because China is so incredibly good at understanding the American marketplace.

The bottom line for all this chatter is that the Biden Administration should just eliminate all the Trump tariffs – especially as related to the fashion side of retail. Theses tariffs have stoked inflation and raised cost throughout the entire supply chain, and there have been no visible or sustainable benefits what-so-ever.

Unfortunately, some think that Team-Biden will just grant a few high-profile categories for tariff relief, and then develop a convoluted exclusion process for other products – so that the “politics” looks better – versus supporting the American consumer and attempting to dis-inflate the U.S. economy. To add some cover to their actions, the government will probably also institute a new section 301 investigation to target specific business sectors in China. In that way, they are continuing to be tough on China, but not taking any immediate action.

And finally, as related to doing the right thing for retail, inflation, and the economy – the great social commentator Will Rogers had it right when he said: “If you ever injected truth into politics, you would have no politics.”

It’s time to end the tariffs.