Importers, Retailer Say Tariffs Could Dampen Demand, Lead to Job Cuts
Although there have been no signs of retail weakness and virtually no signs of inflation from the U.S.-China trade war so far, the National Retail Federation's David French said, "Tariffs thus far have only been on the margin of the consumer economy. What has happened to date has not been indicative of the future." Joann Fabrics and Crafts stores have been on the leading edge of consumer effects, its CEO told reporters Aug. 7 on a conference call organized by the NRF. He said almost half of what they import from China was on List 3, and therefore has a 25 percent tariff.
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
"That alone was more than our annual profitability," said Joann Stores CEO Wade Miquelon. The chain, which employs 23,000 and has more than 860 stores, has shifted some products to other countries in the last year, but fleece, artificial flowers and other goods are not available elsewhere. Miquelon said they've tried not to raise prices, but where they have hiked prices, they've already seen a drop in demand. He said he's concerned there will be a vicious cycle of higher prices and less demand.
Lance Ruttenberg, CEO of American Textile Company, a manufacturer of pillows and bedding, said, "These tariffs don’t appear to be part of any broader policy or strategy." He said that trade with China and other developing nations benefited America. As we lost unskilled manufacturing jobs, we expanded our ability to sell Boeings and Starbucks coffee, and establish Marriott hotels around the world. Ruttenberg said his firm, which has 1,200 employees, including 850 in the U.S., sells 50 times more than it did 25 years ago. They manufacture in Georgia, Texas, Utah, El Salvador and China.
Jay Foreman, CEO of Basic Fun! Toys, agreed that value-added manufacturing is more important than the apparel and toy jobs that went overseas. "Let's build trains, planes and wind turbines, not teddy bears and flip flops," he said. Foreman said his firm, which he projects will have $150 million in sales this year, is not interested in trying to shift production to India or Vietnam, because he doesn't trust that the president won't impulsively punish them next. Although toy imports are only facing a 10 percent tariff so far, he said he expects to cut 10 percent of his 110 employees. He said they have an average salary of $84,000.
In response to a question from International Trade Today, he acknowledged that the 10 percent cut in headcount is "somewhat to a degree arbitrary," given that he can reduce some of the tariffs' bite by importing the goods at his cost, rather than doing the sales free-on-board, whereby they sell the goods directly to the retailer from China. Other businesses also said the depreciation would shave about 2 percentage points off the tariffs.
But, he said, a benefit to his company's bottom line -- the tax cut -- does not give him a cushion, because "it's been priced in" since it came a year and a half ago. "So we forecasted to our banks, our lenders the reduction in corporate tax. We planned on our future at the known knowns at the time. Like many other companies, our borrowing base is based on us hitting numbers." If the cost of tariffs eats into their forecasted margins, "We may trip covenants. We typically would try to offset our decreases in our margins by lowering our overheads." He said the trade-off is either spending less on wages, lower bonuses, or paying a higher cost to borrow.