Trump levy is bad news for US shoppers and Chinese suppliers

SHANGHAI: President Donald Trump’s move to slap tariffs on at least $50 billion in Chinese imports is likely to be bad news for many of China’s exporters – as well as Americans who like wearing Victoria’s Secret bras, Guess jeans or Nike sneakers.

A vast amount of items used by US consumers – from Under Armour leggings to Bath & Body Works shower gel and Samsonite luggage – are sourced from Chinese or Hong Kong based companies and factories, fuelling the US$450bil in Chinese goods imported to America annually. Broadbased tariffs, which the US said would be a 25% duty, may translate into higher sticker prices in stores across the US.

Retailers in the US have pushed back, saying any such levies would amount to a tax on American consumers. In China, meanwhile, small exporters with a heavy reliance on the US worry that their cost advantage could be wiped out in the global supply chain.

“That’s it then, we have no more competitive edge,” said Justin Yu, a sales manager at Zhejiang-based Pinghu Mijia Child Product Co, which makes toy scooters sold at American retailers. “I don’t know what we are going to do.”

The US has yet to announce the list of products the additional duties will be levied on, but has said aerospace, information and communication technology will be targeted. Since consumer goods account for a large chunk of exports from China to the US, some Chinese manufacturers are preparing for the worst.

Companies are already planning to raise prices if they are affected. If tariffs are raised on its products, Samsonite International SA chief executive officer Ramesh Tainwala sees one logical recourse. “We pass it on to the consumer,” said Tainwala, who spoke to reporters in Hong Kong last week. “We have the pricing power. We are the ones who will move first and the industry will follow.”

Samsonite is in an unusual global position. While the world’s biggest luggage maker is based in Mansfield, Massachusetts, it is listed on the Hong Kong exchange. Samsonite executives say it manufactures two-thirds of its products in China and currently pays a tariff of more than 25% on them to the US.

The impact on other American companies would be widespread, fanning out across the US because of the intricate links with international supply chains. Tariffs hitting one company in China can have a ripple effect across dozens of customers in the US. The connections are particularly strong across the apparel and technology industries.

Apparel and footwear, telecommunications equipment and household appliances are among the Chinese manufacturing sectors with the biggest exposure to the US market, according to a Moody’s research note released on Thursday.

Hong Kong-based Li & Fung Ltd alone collects about two-thirds of its revenue from about 50 consumer-product companies in the US, including retailers Walmart Inc, Kohl’s Corp and J.C. Penney Co. For Regina Miracle International Holdings Ltd, a Hong Kong-based manufacturer of intimate wear, American demand for lingerie makes up about 60% of revenue. Its customers include lingerie brand Victoria’s Secret.

Lenovo Group Ltd, the Beijing-based computer manufacturer, gets almost a third of its US$43bil in annual revenue from North America by selling its products to companies such as HP Inc and Verizon Communications Inc.

Still, large Chinese companies like Li & Fung are likely to get some protection because of the diversity of their businesses and their international chain of suppliers. “With a global network of over 15,000 suppliers in over 40 markets, we are well-positioned to absorb in any shock from trade uncertainty,” Li & Fung said in a statement.

“We are unique in the industry, in that if there is any change in trade policy, we have the ability to channel production to any market quickly.”