President Donald Trump last week led the U.S. into a new chapter of the ongoing trade war with China when he announced a 25 percent tariff increase on $200 billion worth of Chinese imports, a move that prompted Beijing to raise tariffs on more than 5,000 U.S. products with rates ranging from 5 percent to 25 percent.
Reaction from stakeholders across the active lifestyle market was swift, with industry associations strongly rebuking the trade war and its likelihood of raising prices on goods for U.S. consumers.
SGB has compiled some of the association commentary and business reaction to the latest round of tariffs, plus a timeline of the U.S.-China trade war, the ramifications of this latest round and tips on mitigating tariffss.
Here are a few responses to the trade war from leaders of the trade organizations that cover the outdoor and sporting goods industries. They have been among the most vocal in opposing increased tariffs because of the burden they place on member companies:
Tom Cove, President, Sports & Fitness Industry Association: “We want to be clear: Negotiating with China to ensure a fair trading regime is very important, especially in regard to China’s policies related to intellectual property protection and forced technology transfer. However, increasing tariffs like this is the wrong approach. These taxes will fundamentally harm the American sports and fitness products industry; there’s no way around it. But as difficult as it will be for our companies, it will be doubly worse for American consumers who will face serious price increases and reduced selection.
“Our industry has aggressively taken steps to diversify its sourcing outside of China, but it is simply not possible for the majority of companies to quickly re-locate the bulk of its production. As a result, there is no way to avoid the onerous impact of these tariffs if they remain in place. We fear a particular threat to small and medium-sized companies who have less capacity and market power to make dramatic shifts in real time.”
Nick Sargent, President, Snowsports Industries America: “We know that increased tariffs will lead to higher prices, passed from manufacturers to retailers, and ultimately to consumers. This is not a pro-growth strategy. Snowsports Industries America (SIA) feels strongly that if the list three tariffs are enacted, we’ll see our local retail businesses suffer the most so we strongly urge the Administration to continue discussions to avoid this reactive and dangerous approach.”
Patricia Rojas Ungar, Vice President of Government Affairs, Outdoor Industry Association: “Raising current tariffs to 25 percent and targeting a new group of products totaling $325 billion will be devastating to American families and businesses. Increased tariffs will greatly raise out-of-pocket costs on nearly everything Americans wear on a daily basis and put thousands of small and medium-sized businesses at risk of going out of business. It’s critical that the trade dispute with China end quickly and fairly, and that we see all the tariffs removed. We urge the Administration to stay at the negotiating table to get it done.”
Matt Priest, President & CEO, Footwear Distributors And Retailers Of America (FDRA): “[Retailers] are all competing for consumers’ disposable income, so if prices on other products are driven up, that’s going to take away discretionary income and shrink the pie for everyone. Anytime there’s inflation across the consumer goods market, it will impact what people will spend on footwear whether we have an additional duty in place or not.”
Rick Helfenbein, President and CEO, American Apparel & Footwear Association: “We strongly oppose the President’s announcement that he will continue to penalize American families, and add additional obstacles to economic growth, by imposing further tariffs on U.S. imports from China. As has been made clear by the Administration’s use of tariffs during the past year, tariffs are an additional tax burden placed on Americans. These taxes are not paid by foreign nations and they result in higher costs that are simply passed on to the American consumer. The tariffs described by the President – both those that would be increased to 25% on Friday, and those that would be added to consumer goods like clothing and shoes that are not currently being charged with punitive tariffs – will only hurt U.S. families, U.S. workers, U.S. companies, and the U.S. economy.
“We urge the President to refrain from imposing these additional tariffs and instead focus on negotiating and concluding the trade deal with China.”
Many companies on recent quarterly conference calls didn’t mention the potential threat of tariffs. Last fall when concerns about an escalating tariff war first arrived, several indicated that they had already diversified sourcing away from China over the years and some revealed plans to help mitigate any impact.
The following are a few comments from firms in the active-lifestyle pace on the impact of tariffs:
GoPro in mid-December announced intentions to move most of its U.S.-bound camera production out of China by the summer of 2019 to mitigate the potential impact of inclusion on any new tariff lists. On its first-quarter conference call on May 9, GoPro officials said they were on track to begin ramping up U.S.-bound camera production in the second quarter in Guadalajara, Mexico to support sales beginning in Q3. Most of its U.S.-bound cameras will be produced in Mexico in the second half of 2019. Said Brian McGee, CFO, “As stated previously, our decision to move most of our U.S.-bound production to Mexico supports our goal to insulate us against possible tariffs, as well as recognized some cost saving and efficiencies.”
Brooks, which is part of Berkshire Hathaway, is moving most of its production out of China to Vietnam as a result of the trade dispute, Jim Weber, CEO, told Reuters in early May. Currently, Vietnam makes up 55 percent of Brooks’ running shoe production, with China accounting for the remainder. He envisioned the eventual sourcing breakdown could be 65 percent from Vietnam, 10 percent from China and 25 percent from the third not-yet-determined country. Weber noted that tariffs on running shoes could rise to 45 percent under the tariff threat from 20 percent and Brooks can’t raise prices for runners. Weber said, “We’ve had to make a long-term decision on this picture. It’s disruptive, but the reality. So we’ll be predominantly in Vietnam by the end of the year.”
Clarus Corp.,the parent of Black Diamond and Sierra Bullets, on its first-quarter conference call on May 6 indicated that it continues to expect the company’s cost of goods sold in 2019 to be impacted by an estimated $450,000 in tariffs that it is seeking to mitigate. Said Aaron Kuehne, CFO, “While it is still unclear if additional tariffs will be levied, we do believe we’ll be able to absorb the current proposal in our model. In addition, we are focused on four primary mitigating activities. First is resourcing. We are working with our diversified supply chains and coming up with different sources for product coming out of China. Second is repricing. We are working with our retailers to pass along some of the costs. Given our pace of recent product innovation, however, these conversations are a natural progression and we believe will have a positive outcome. Third, is recasting. We have been working with our vendors to renegotiate costing to offset some of the impacts. And finally, we’re optimizing logistics to bypass the US on international shipments.”
Johnson Outdoors on its second-quarter conference call held May 3 said it now expects tariffs on Chinese goods to have an impact on profits between $5 million to $7 million this fiscal year, down from an estimate of $6 million to $9 million previously. The change reflects the securing of an exclusion for the certain components that are used in products assembled in the U.S. Johnson Outdoors officials said they’re continuing various tariff mitigation efforts with respect to other affected product components.
Helen of Troy, the parent of OXO, Hydro Flask, Vicks, Braun, Honeywell, PUR, and Hot Tools, has lifted prices to mitigate the impact of tariffs. On its fourth-quarter conference call on April 26, officials indicated that the bulk of the pricing actions did not become effective until the end of fiscal year ended February 28 or early fiscal 2020. As a result, the net unmitigated tariff impact absorbed by the company during fiscal 2019 was approximately $4 million. Officials indicated they had not noticed a notable increase in prices at stores although retailers may still be selling through older inventories. Said Brian Grass, CFO, on the call, “We are pleased to report that we have now largely completed pricing action and other mitigation actions with our customers and do not expect any meaningful adverse growth profit dollar impact from tariffs going forward, assuming the status quo remains in effect.”
Wolverine World Wide, the parent of Merrell, Saucony, Sperry and a number of other footwear brands, on its first quarter conference call on May 9 said its inventories ended the first quarter up 28.7 percent year over year in large part to support anticipated growth. But officials also said the stronger core inventory position “would essentially mitigate any potential tariff exposure” for 2019. Wolverine last fall indicated that it had been diversifying sourcing away from China over the years and the country and only accounted for about 15 percent of its production. Blake Krueger, CEO, on the first-quarter call also said he suspects any escalation in tariffs would likely impact consumer spending in 2020. He said, “The consumer is responding to things that are newsworthy that break through the clutter. So overall, our view of the U.S. consumer is pretty positive, right now even with all the tariffs buzz that you read about and we all read about every day.”
Deckers Outdoorson its third-quarter conference call on January 31 said it currently doesn’t expect any impact to its business from the currently imposed tariffs. Said Steve Fasching, CFO, “But we will continue to monitor tariff decisions and work closely with our supply chain operations to identify risk mitigation strategies should future tariffs begin to impact us. As we have previously mentioned, we have been actively shifting over production outside of China, and we currently have less than a quarter of our production being done there.”
Trade War Timeline
To recap, here is a timeline of the U.S.-China trade war since Trump made the first move in January 2018:
- January 2018: Trump targets Chinese-made solar panels and washing machines with tariffs of 30 percent and 20 percent, respectively.
- February 2018: Next on the Trump’s list—a 24 percent tariff on steel and 7.7 percent tariff on aluminum from China.
- March 8, 2018: Trump follows through on the previously announced tariffs and even bumps them up to 25 percent for imported steel and 10 percent for imported aluminum. “Trade wars are good, and easy to win,” Trump tweets prior to the move.
- April 2, 2018: In response to the steel and aluminum tariffs, China announces $3 billion worth of tariffs on U.S. imports, including a 15 percent duty on American products such as fruits, nuts, wine and steel pipes and a 25 percent duty on products such as recycled aluminum and pork.
- April 3, 2018: Trump announces another $50 billion in tariffs on Chinese products, mostly on aerospace, machines and medical equipment.
- April 4, 2018: China adds to its initial tariff plan with $50 billion more in tariffs on U.S. goods, including aircraft and automobiles, as well as soybeans and chemicals.
- April 5, 2018: Trump threatens to add $100 billion in goods to the tariff list.
- May 19, 2018: According to Treasury Secretary Steven Mnuchin, the trade war is “on hold.”
- June 15, 2018: Trump directs the Office of the United States Trade Representative to explore the potential for additional tariffs on $200 billion in Chinese goods.
- July 6, 2018: The U.S. formally imposes a 25 percent tariff on $34 billion worth of Chinese goods, in addition to tariffs on some U.S. exports to China. The U.S. also raises tariffs on exports to Canada, Mexico and the European Union.
- August 23, 2018: The U.S. adds a 25 percent tariff on an additional $16 billion worth of Chinese goods.
- September 17, 2018: The Trump administration announces it is moving forward with plans to impose new tariffs on $200 billion worth of Chinese imports, but the tariff is set to 10 percent rather than 25 percent.
- December 1, 2018: President Donald Trump and Chinese President Xi Jinping agreed to a temporary trade cease-fire to allow time for more negotiations.
- February 24, 2019: Trump delayed the March 1 deadline to increase tariffs on Chinese goods, citing “substantial progress” during a week of trade talks in Washington, DC, between U.S. and Chinese officials.
- May 5, 2019: Trump threatens to impose higher tariffs on China in a tweet, dashing hopes that Washington and Beijing would reach a trade deal in the near term.
- May 10, 2019: The U.S. increased tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent Friday hours after trade talks held in Washington failed to produce a breakthrough.
Look for this recent escalation of the trade war to have wide-reaching ramifications. For example, imports at the nation’s major retail container ports are expected to see unusually high levels the remainder of this spring and through the summer, according to the monthly Global Port Tracker report released May 9 by the National Retail Federation and Hackett Associates.
“Much of this is driven by consumer demand but retailers are likely to resume stocking up merchandise before new tariffs can take effect,” said Jonathan Gold, NRF’s vice president for supply chain and customs policy. “Tariff increases and new tariffs will mean higher costs for U.S. businesses, higher prices for American consumers and lost jobs for many American workers. We encourage the administration to stay focused on a trade agreement, and we hope the negotiations will get back on track. It would be unfortunate to undermine the progress that has been made with more tit-for-tat tariffs that only punish Americans.”
Also, to understand some of the ways companies can take action to mitigate the effects of tariffs, read the SGB Executive article from last fall, How To Navigate The Trade War. In this piece, David Cohen, a Washington, DC-based international trade lawyer for Sandler, Travis & Rosenberg P.A., shares eight possible strategies for companies to consider as they deal with increased tariffs on the products they import from China.