Retail experts think consumers should be scared of tariffs.
“One hundred billion in further tariffs is beyond frightening,” says American Apparel & Footwear Association CEO Rick Helfenbein as the Trump administration is proposing an additional $100 billion in tariffs on products imported from China, beyond the $50 billion detailed earlier this week.
But tariffs aren’t new to retail.
In fact, American consumers have been paying for tariffs on clothing and shoes since the 1930 Smoot-Hawley Tariff Act.
The current average duty rate paid for all goods the U.S. imports is 1.4 percent, while the average tariff on travel goods and footwear is about 11 percent, according to the AAFA.
While apparel and footwear have not been specifically listed (yet) as targets of further tariffs, most that study trade say there are only so many categories the U.S. imports from China, making it almost inevitable these categories are next.
Especially considering 97 percent of all clothing and 98 percent of all footwear sold in the U.S. were made overseas.
Clothing, shoes, textiles and travel goods only make up 6 percent of everything the U.S. imports, but the group collectively generated more than half of the $34.5 billion in tariffs collected in 2017.
It’s true that shoe shipments from China to the U.S. have fallen to a 20-year low, but the U.S. still imports more footwear pairs from China than any other country, at nearly 73 percent. Vietnam is next at 16 percent, and imports from the nation have grown for 17 straight years. Indonesia holds the third spot for footwear imports at more than 4 percent, according to an analysis of trade data by the AAFA.
More than 41 percent of U.S. clothing imports are from China, followed by more than 12 percent from Vietnam, 7 percent from Bangladesh and 5 percent from Indonesia.
Footwear Distributors and Retailers of America CEO Matt Priest says there are 436 ways to classify shoes when it comes to the government’s tariff codes and based on construction materials of the upper and outer soles, footwear duties go as high as 67.5 percent.
Duties on clothing are also levied in a wide range, including pantyhose at 16 percent, certain knit tops and men’s coats at 28 percent.
Whether Americans realize it or not, Priest says consumers are currently paying for all of those tariffs.
So how much do Americans currently pay in tariffs? Here’s an example:
Start with a shoe that costs $25 to make in China. Add the average 11 percent footwear tariff when it hits U.S. shores, and now it costs $27.75. A typical retail markup is anywhere from three to five times the cost of the shoe. Using the low-end retail multiplier of three, and that shoe now sells in a retail store for $83.25. Which means $8.25 ($2.75 in tariff on the $25 cost multiplied by three) of that $83.25 price tag was a tariff, paid by the consumer.
What if there’s a further 25 percent tariff levied on that shoe on top of what exists from the 1930 tariff?
The $25 shoe with a 36 percent tariff has a base cost of $34. Taking the retail multiplier of three times, and now the retail price tag is $102, with $27 of that price a tariff ultimately paid by the consumer.
While the retail multiplier of three to five may seem to suggest there is lots of wiggle room for retailers to absorb the tariff instead of passing it onto the consumer, industry groups say the average margin on a pair of shoes is around 2 to 3 percent once factoring in all the players in the supply chain that take a piece of that markup and all the costs that go into running that supply chain.
“It’s like insanity breeding more insanity. More tariffs are going to have a multiplier impact; hurt the GDP, hurt the economy, hurt everything we stand for,” Helfenbein says. Further tariffs will cause a chain reaction where retailers cut back orders, raise prices and lay off workers, he says.
CEOs of retail lobby groups say those tariffs have been restricting business for nearly a century, but “like hip pain, you get used it overtime, and you learn how to walk,” Helfenbein says. He adds, “What worries me, is that it becomes a game to an administration, and we don’t think this is fun at all, and it’s not funny. It’s serious business.”
Retail lobbyists are working hard to get the message through to the Trump administration that while there are issues to fix in the U.S. trade relationship with China, tariffs are a tax on American consumers.
“There are always collateral victims in trade wars, and if China and the U.S. get into war, the victims are going to be the consumers of the United States, no one is going to win this war,” National Retail Federation CEO Matthew Shay says in an interview with CNBC.
A statement from Hun Quach, vice president of international trade at the Retail Industry Leaders Association, urges the administration to explore other solutions to the country’s trade disputes with China. “Tariffs on over $150 billion of imports will have an impact on the budgets of every American family. If the Administration follows through on this threat, American families should prepare to pay more for summer clothes, shoes, back to school gear, home décor, holiday shopping-this will hit every season and every category.”
Quach echoes the sentiment of others that the ripple impacts magnify the economic pain. “Tariffs of this magnitude will not only negate any increase from tax reform in worker’s paychecks, but the combination of new taxes on consumers and retaliatory taxes on American exports has the potential to both depress consumer spending and slow down the economy.”
