President-elect Trump’s announcement on social media platform Truth Social on Monday that the US will be charging an additional 10 per cent tariff on all imports from China comes as many US retailers are already reconsidering their sourcing strategies.
“What we are seeing right now is a lot of retailers stocking up on inventory to carry them through the next 6-12 months at which point we are likely to see major adjustments to inventory planning and consumer pricing, depending on how tariffs are applied,” Benjamin Cavender, MD at China Market Research Group (CMR), told Inside Retail.
“I think where possible we will likely see a further shift in production and sourcing to markets like Vietnam, Mexico, and Cambodia in order to dull the effect of tariffs.”
While campaigning for president earlier this year, Trump said he would impose tariffs of 60 per cent or higher taxes on Chinese products. The National Retail Federation estimated that the proposed tariffs on six categories – apparel, toys, furniture, household appliances, footwear and travel goods – would reduce American consumers’ spending power by $46 billion to $78 billion every year the tariffs are in place.
The industry body also said the increased costs as a result of the proposed tariffs would be too large for US retailers to absorb and would result in higher prices than many consumers would be willing or able to pay.
In response to the announcement on Monday, the Chinese embassy in Washington stated: “China believes that China-US economic and trade cooperation is mutually beneficial. No one will emerge victorious from a trade war or tariff war.”
Given Trump’s statements about his plan to impose tariffs on Chinese imports, companies like Temu and Shein are expected to be significantly impacted by his election.
These companies have benefited from trade laws that allow them to avoid taxes and tariffs while entering the US market. However, they may soon face a tougher battle to maintain their market dominance due to the new tax proposal and competition from Amazon’s newly launched platform Haul.
“It’s a little bit too early to know what the next administration has in store for foreign retailers and e-commerce platforms. Right now I think platforms and sellers are all waiting to see in what form tariffs are likely to materialise and then beyond that if there will be further regulation of foreign-owned platforms,” Cavender said.
“My sense is that TikTok, Temu, and Shein may all come under pressure though I do not think it will be easy to force them to cease operation.”
More Chinese brands looking into expanding their reach to the US are now re-evaluating market entry timing and approach as the political and economic landscape becomes increasingly complex with potential tariff increases and heightened regulatory scrutiny.
“If Trump does in fact put a 60 per cent tariff on all goods from China, it will cause Chinese retailers to reevaluate how they plan their US strategy and how they balance sales to the US against sales to other global markets,” Cavender added.
“If looking at the question from a brand angle, the US still represents a key retail market to win and there is still a lot of opportunity. Where I would be more careful is in thinking about large capital expenditures, for example, large factory build-outs, as it is too soon to know what the administration’s actual approach to China will be like.”
US retail companies that depend on Chinese imports face challenges at home from potential tariff increases, while simultaneously losing market share in China, the world’s second-largest economy.
Apple, which became the leading smartphone company in China for the first time with record-high market share of 17.3 per cent in 2023, has been struggling to maintain its competitive advantages. In the second quarter, Apple was edged out of the top five smartphone vendors in China as Huawei, Vivo, Oppo, Honor and Xiaomi gained popularity.
The company’s CEO Tim Cook has participated in the second annual China International Supply Chain Expo, his third visit to the nation within the year.
“We’re very committed to China, that’s the reason I have been here three times,” Cook said in a video interview with Chinese state media on Monday, expressing optimism regarding future collaborative opportunities.
China is one of Apple’s largest supply-chain providers and one of its most important international markets. More than 80 per cent of Apple’s 200 major suppliers produce items in the country.
Meanwhile, Nike is also losing its share in the China sneaker market to domestic players, including Anta, Li-Ning and Xtep. The company recently reduced its full-year financial outlook, citing economic challenges in China, which represents its third-largest market. The sportswear giant reported weaker performance in the region, describing market conditions as “soft.”
While not being affected by the tariff, US coffee giant Starbucks is also facing significant challenges in China. The company’s comparable store sales in China dropped 14 per cent during the fourth quarter due to weak consumer spending and fierce competition with local chains such as Luckin Coffee and Cotti Coffee rapidly gaining market share.
The company is exploring options for partnerships in its Chinese operation.
Further reading: What’s at stake for retailers in this year’s election?
The post Trump’s tariff plan: How US and Chinese retailers could be impacted appeared first on Inside Retail Australia.
