Companies Brace for President Trump’s China Escalations

Photo Credit: Evan Vucci/AP/Shutterstock
May 16, 2019

By Rebecca Heilweil

Companies are bracing for tariffs that could raise prices for consumers and limit business with China. Earlier this week, following China's announcement that it would impose retaliatory tariffs on $60 billion of U.S. goods, markets saw their worst fall since January 3. To fully recover (as of Thursday morning), the Dow Jones would have to rise 295 points, the S&P, 31 points, and the Nasdaq, 95 points.

Retailers, which rely extensively on China for manufacturing, have reason to pay attention, though major companies like Macy’s and Walmart are telling investors that it’s not time to freak out (yet). On an earnings call, Macy’s executives told investors that the tariffs would most significantly hurt its furniture businesses, but that the duties’ impact “can be mitigated.”

However, Walmart, which relies on marketing low prices to customers, admitted that costs for consumers will rise.

“They’re mitigating, and they have strategies in place. But ultimately, consumers will have to pay a higher price. So the question really becomes who is going to eat up the cost,” Jharonne Martis, Refinitiv’s director of consumer research, told Cheddar. “Will it be the brands, the manufacturers, or the retailer? There’s been a lot of consumers.“

The more pressing concern for American retailers is whether more tariffs are coming their way. When U.S. Trade Representative Robert Lighthizer announced last week that Trump would be raising tariffs on more than $200 billion of Chinese goods, he also added that the U.S. had begun the process of imposing higher tariffs on remaining Chinese imports, which the White House said are valued at $300 billion.

On Monday morning, China retaliated by raising its tariffs on $60 billion of U.S. goods.

A fourth round of tariffs, Martis said, would raise alarm bells. “Earnings wouldn’t grow, and then, that would be disaster,” said Martis. “Retailers would really have to really rethink their strategy, and think about whether they want to stay in China or not.”

Yesterday, the U.S. Department of Commerce also added the Chinese telecommunications giant Huawei and its 70 affiliate businesses to the “Entity List,’ which requires approval from the government before U.S. companies can sell them parts and components, following Trump's executive order banning domestic businesses from using technology from sources deemed to be a national threat.

Some American tech companies that sell to Huawei could suffer consequences as well, including firms such as Qualcomm and Intel.

“In the United States, we are very clear that we want technology here, and we want to have some sort of protections on our technology. And if you don’t play fair, then you might not have access to some U.S. consumers,” Winnie Sun, the founder of Sun Group Wealth Partners, told Cheddar.

There's also some anxiety that a trade war with China could last through 2024, should Trump be re-elected. "A six-year trade war that continues along these sort of line, would be absolutely devastating, in my opinion, for the economy. A moderate protraction of three or four months would be tolerable," Jared Levy, Delancey Strategies' chief market strategist, told Cheddar. "Now it feels like a tit-for-tat trade war."

He says that a year without a solution could cause GDP decline of 20 to 30 percent. "The consumer will slow down their spending, and the ramifications will ripple through the economy," said Levy.

Still, Sun believes there could be a silver lining.

“Things are probably going to get more expensive,” added Sun. “But perhaps, in the long run, that might mean that more goods will be produced here in the United States, and maybe in other countries. It might, sort of, diversify where the goods that we receive are from. In the long run, it probably is to our benefit to be less dependent on one specific superpower.”