8 Retailers Facing Rising Risk as China Trade War Escalates

8 Retail Companies Facing Trade War Risk

As reported by Investopedia, retail stocks that had been surging this year with the bull rally have pulled back and now are at risk of falling even further as the renewed U.S.-China trade conflict threatens to sharply boost their costs.

Today, the U.S. hiked tariffs on Chinese goods worth $200 billion from 10% to 25%.

The Chinese government has vowed to take countermeasures, and President Trump has threatened to tax nearly all Chinese exports “shortly.”

Trump also tweeted that there is “no need to rush” negotiations with China on a trade deal, pushing U.S. stock futures lower.

Talks with China continue in a very congenial manner - there is absolutely no need to rush - as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S….

— Donald J. Trump (@realDonaldTrump) May 10, 2019

Retailers at Risk

Companies at risk include Target, Lowe's, Best Buy, Costco, Dollar Tree, Kroger, Walmart, and Home Depot, per a report by Bernstein as outlined in a detailed Barron’ story.

8 Retail Stocks Facing Trade War Risk (stock price)

While retailers have been attempting to diversify their supply chain in light of the threat of heavy levies on Chinese imports, these measures take time to implement.

Retailers Respond to Administration’s Threat to Raise Tariffs

“A sudden tariff increase with less than a week’s notice would severely disrupt U.S. businesses,” said David French, a senior vice president at the National Retail Federation.

“Tariffs are taxes paid by American businesses and consumers, not by China. A sudden tariff increase with less than a week’s notice would severely disrupt U.S. businesses, especially small companies that have limited resources to mitigate the impact. If the administration follows through on this threat, American consumers will face higher prices and U.S. jobs will be lost.”

“We want to see meaningful changes in China’s trade practices, but it makes no sense to punish Americans as a negotiating tactic. If the administration wants to put more pressure on China, it should form a multinational coalition with our allies who share our concerns. We urge the administration to reconsider this tax hike on Americans and stay at the bargaining table until a deal is reached,” French stated.

BBC economics correspondent Andrew Walker said the direct impact of the trade dispute would be on the US and China.

He said there was economic research suggesting that US tariffs hit American consumers, not Chinese exporters, as President Trump argues.

View the Paper: The Impact of the 2018 Trade War on U.S. Prices and Welfare

US Trade with China

US trade deficit with China has soared since 1985

Risks of Lower Consumer Purchasing Power

Before President Trump escalated trade tensions with China last weekend, the SPDR S&P Retail ETF (XRT) was up 11.1% year-to-date as of Friday close. That return has fallen to 7.7% as of Thursday afternoon, compared to the broader S&P 500’s 13.5% gain this year.

When higher costs are passed on to consumers through higher prices, consumer purchasing power decreases, leaving shoppers with the option to buy the higher cost goods or save their money. A study by Trade Partnership Worldwide, an organization against China tariffs, estimates that a 25% levy on Chinese goods would result in a $767 loss per four-person family in the U.S. annually.

View (PDF): Estimated Impacts of Tariffs on the U.S. Economy and Workers

A major problem facing retailers is that even with consumer confidence and employment near the highest level in several years, U.S. consumers remain very budget-conscious.

With shoppers more cognizant of price changes, any increase could hurt retail sales.

Tariffs Hurt the Heartland, a nationwide campaign against recent tariffs on American businesses, farmers and consumers, today released new data that shows American businesses paid an additional $2.7 billion in tariffs in November 2018 - the most recent month data is available from the U.S. Census Bureau due to the government shutdown.

This figure reflects the additional tariffs levied because of the administration’s actions and represents a $2.7 billion tax increase and a massive year-over-year increase from $375 million in tariffs on the same products in November 2017.

The historic tax increases come despite overall imports being slightly lower. The data, compiled by Trade Partnership, also shows that U.S. export growth hit its lowest level of 2018 in November, thanks in part to a 37 percent decline in exports of products facing retaliatory tariffs.

“This data shows that Americans, not our foreign competitors, are the big losers in the trade war,” Tariffs Hurt the Heartland Spokesman and former Congressman Charles Boustany said.

“U.S. businesses are being hit by a double whammy of historic tax increases in the form of tariffs and declining exports as farmers and manufacturers lose opportunities in the overseas markets they rely on for their livelihoods. As U.S.-China trade talks resume, we hope the administration will heed the concerns of the thousands of American companies facing unprecedented tariff costs while making further progress toward an improved trading relationship and an end to the trade war. The proposed March 1 tariff increase should be completely off the table as American businesses are already facing billions more in tariffs every month.”

The November 2018 data shows that retaliatory tariffs, in particular, have had an immediate and severe effect on US exports. In November 2018, US exports of products subject to retaliatory tariffs declined by $4.1 billion, or 37 percent, from the previous year.

Export Growth on Products Targeted For Retaliation Nosedives

Other key takeaways from the November data:

Despite $426 million in monthly steel import tariffs and the Trump administration targeting even allies like Canada and Mexico with tariffs, steel imports actually INCREASED in November 2018.
China Section 301 tariffs cost American companies approximately $2.1 billion in November. Products subject to the Section 301 remedies faced $2.5 billion in tariffs in October, compared to just $363 million in November 2017. Tariffs on most of these products could rise from 10 percent to 25 percent unless the U.S. and China reach a deal in the coming weeks.

Source: Tariffs Hurt the Heartland

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