Facing Trump’s tariffs, companies on the spot
Some move or adapt; others wait
WASHINGTON – Some are moving factories out of China. Others are strategically redesigning products. Some are seeking loopholes in trade law or even mislabeling where their goods originate – all with the goal of evading President Donald Trump’s sweeping tariffs on goods from China.
But most of the companies that stand to be hurt by Trump’s tariffs are hunkering down and waiting because they don’t know when, whether or how his yearlong trade war with China will end or which other countries the president might target next.
Consider Xcel Brands, a New Yorkbased company that owns such brands as Halston, Isaac Mizrahi and C. Wonder. Two years ago, it made all its clothing in China. Now it’s on the move – diversifying production to Vietnam, Cambodia, Bangladesh and Canada and considering Mexico and Central America as well. By next year, it expects to have left China completely.
“You have to keep moving things around,” said CEO Robert D’Loren.
Trump launched the world’s biggest trade war since the 1930s by imposing tariffs on $250 billion in Chinese goods and threatening to tax $300 billion more. He has pursued separate battles with America’s allies, too – from South Korea, Mexico and Canada to Japan and the European Union – over trade in steel, aluminum and autos.
Faced with the prospect of a forever war with America’s trading partners, numerous businesses say they’re delaying investment decisions and reviewing their business relationships until they have a clearer view of how Trump’s trade wars might end – if they will.
Shifting to other countries could slash Xcel Brands’ labor costs in half. This is crucial, D’Loren said, because fashion companies have little ability to raise prices and would have to absorb the cost of higher import taxes.
The trend of manufacturers leaving China predates Trump’s trade wars. With wages and other costs in China rising, companies were already shifting toward lower-wage countries, from Vietnam to Mexico.
A few have considered shifting production to the United States.
Hurt by Trump tariffs on the metals used to make brass, Coins 4 U, which markets coins for awards and promotions, last year moved production from China, where it had been manufacturing since its founding in 2013, to Lake Ronkonkoma, New York.
“Our costs didn’t rise too much, about 10%,” said Sam Carter, sales manager for the company, based in Cheyenne, Wyoming.
But it isn’t simple for some companies to completely abandon China, where specialized suppliers cluster in manufacturing centers and make it convenient for factories to obtain parts when they need them.
Over the past five years, Columbia Sportswear has cut its manufacturing presence in China by more than 60%. But some products can’t be made elsewhere, the company says, because they’re highly specialized and dependent on significant investments in tooling, machinery and personnel training. Columbia’s Sorel Style shoe, for example, features a hidden wedge heel that requires proprietary tooling and machinery.
Increasingly, clothing and shoe companies are trying to design their way out of paying tariffs. Some have used a strategy called “tariff engineering.” It involves altering products just enough to change how they’re classified under the U.S. International Trade Commission’s Harmonized Tariff Schedule to evade or reduce import taxes.
Small changes can make a big difference. Add drawstrings or pockets below the waist to a blouse and the import tax drops from 15.4% to 8.1% for a cotton version and from 26.9% to 16% for one made of polyester.
U.S.-based companies are also scouring customs laws for loopholes. Increasingly, e-commerce companies are looking to ship directly to U.S. homes from warehouses in Mexico, Hong Kong and Canada. Federal regulations allow U.S.-based companies to send packages worth less than $800 to American homes from countries like Mexico and pay no tariffs.