Racked is no longer publishing. Thank you to everyone who read our work over the years. The archives will remain available here; for new stories, head over to Vox.com, where our staff is covering consumer culture for The Goods by Vox. You can also see what we’re up to by signing up here.
Donald Trump was supposed to be bad for civil rights, bad for the environment, and bad for women, but he was always supposed to be good for business. After all, Trump is a businessman. But now that he’s ignited what China is calling the “largest trade war” in history, he’s managed to alienate the business community, too.
The second year into his presidency, he’s clashing with business leaders, including those from retail and fashion. The current dispute — it’s not Trump’s only disagreement with business leaders — started after the president’s decision in March to impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. (A tariff, or duty, is essentially a tax placed on goods made overseas, and ultimately consumers pay the price.) At the time, Matthew Shay, president of the National Retail Federation, a trade group representing retailers from the US and other countries, said Trump had an “apparent desire to ignite a trade war.”
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!— Donald J. Trump (@realDonaldTrump) March 2, 2018
That’s exactly what’s happened. In addition to the steel and aluminum tariffs, the Trump administration is placing 25 percent tariffs on $34 billion worth of Chinese products and restricting Chinese investments in the US technology sector. In retaliation, China is hiking duties on $34 billion worth of US goods. These tariffs went into effect today, despite the efforts of top retail brands and economists to persuade the Trump administration not to impose them. Instead of helping the United States, they’re going to hurt businesses, consumers, and the economy overall, experts say. Jeffrey Sachs, a professor and director of the Center for Sustainable Development at Columbia University, went so far as to call Trump’s trade war “insane.” And it could have a major impact on retail.
Phil Levy, senior fellow on the global economy at the Chicago Council on Global Affairs, a nonpartisan organization that provides insight on world affairs, told Racked: “I think this will be a problem for retail. I think they’re going to raise costs and hurt American consumers and hurt businesses that cater to Americans. I think it’s going to hurt and not do much good.”
In addition to his current role, Levy has taught at the University of Virginia’s Darden School of Business and served as senior economist for trade for President Bush’s Council of Economic Advisers. He points out that because retail is already struggling, the tariffs will be challenging for the industry.
“It’s going to be a big increase in their costs,” Levy said. “The president has this misperception that every dollar from a sale of a product [not made domestically] is a loss to the US, but that’s just not true. US businesses and consumers have decided this is the best thing they can buy at that price now. If you look at the retail industry, it’s not an industry that’s been flourishing, where they can easily take a hit. I think this is going to be painful.”
More than 41 percent of clothes and 72 percent of shoes sold domestically are Chinese-made. While apparel and textiles are not currently the focus of the US-China trade war, Jon Gold, the National Retail Federation’s vice president of supply chains and customs policy, said those goods were still a source of worry for retailers.
“As of right now, apparel is spared from the tariffs involving China, but the concern is that as the president continues to escalate the trade war, apparel will get caught on up on those lists,” he told Racked. “As China ramps up its escalation, they could place retaliatory tariffs on things like cotton, which could have an impact on apparel. The US relies on China to make apparel and footwear, and it’s not easy for companies to find another source in the supply chain for these products. It takes some time to develop those contacts. Often, it takes years.”
China, though, isn’t the only country planning to place retaliatory tariffs on US products. The European Union recently started placing tariffs on US exports like metals, agricultural products, T-shirts and jeans, another sign the trade war could hurt the apparel industry. And the EU has already threatened to place tariffs on $300 billion worth of US goods after Trump flirted with the idea of putting tariffs on European cars.
It troubles Gold that the US is imposing tariffs on US allies and rivals alike.
“It’s extremely concerning for industries that are relying on those markets that we’re putting tariffs on our allies,” he said. “We’re trying to quantify what those impacts are going to have, especially if you have companies operating in Mexico that rely on US exports for their business or you have Canada in retaliation mode.”
In fact, Canada has already started placing tariffs on billions of dollars of US exports because of the duties the Trump administration put on its steel and aluminum.
The nation’s top retailers aren’t keeping quiet about the tariffs and the potential for revenge tariffs. Macy’s, Walmart, Target, JCPenney, Levi Strauss and other major retailers issued a letter to Trump outlining their concerns with his approach to trade. The letter asserted that the tariffs would lead to retaliatory tariffs on US exports and result in consumers paying higher prices for clothes, shoes, and other goods.
Levy said that some members of the public might shrug off the tariffs, thinking the US can just make these products domestically. “The problem is in modern manufacturing businesses tend to specialize in certain things,” he said. “Maybe China makes inexpensive cotton T-shirts, and the US makes higher tech fabrics. Each country or region is specializing in the things they do best, so it’s not a painless process. It’s going to be a jolt for all the producers who are going to have to adapt to the new prices.”
A policy brief from the Trade Partnership predicted that up to 470,000 jobs could be lost due to the tariffs. Small businesses could take a hit as well, according to Gold. He said that while retailers are very supportive of the Trump administration’s corporate tax and regulatory reforms, the tariffs could counteract the benefits of both.
“And there’s no clarity as to how long the tariffs would remain in place,” he said. “The longer they stay in place, the more pain they cause. You’ve got many small businesses that could be out of business in a month if they can’t afford to pass along [the cost of the tariffs] to consumers.
But the Trump administration has waved off concerns about how the tariffs could affect the US economy. It has also insisted that the duties are necessary, particularly on China, because that country’s approach to trade could lead to the transfer of US intellectual property. That’s because, Levy explained, China has coerced Western companies seeking to operate there into joint ventures with Chinese companies. This makes it easy for Chinese businesses to then exit these ventures and simply replicate the creations of American companies.
Tariffs just aren’t the answer to concerns about intellectual property theft, Levy said. Instead, the US should have teamed up with its allies to respond to this problem. Gold agreed.
“We think building a global coalition with trading partners is a better, more measured approach to China than the go-it alone approach is,” Gold said. “We don’t think this is the right way to go. Obviously, the tariffs on aluminum and steel certainly make it a challenge to bring all of our allies — the EU, Canada, and Mexico — together.”
The tariffs aren’t the only trade issue that has business leaders worried. Last week, speculation grew that Trump will lead the US out of the World Trade Organization. Although Trump denied that he would make such a move, he said Monday that the organization had treated America badly and “we will be doing something,” if the WTO doesn’t “change their ways.” He did not say how.
“We certainly hope that’s not a real possibility,” Gold said of the US exiting the WTO. “The US has been with the WTO from the beginning. It’s important for setting the rules of the road for global trade, and it remains a leader pushing forward.”
The business community may vehemently disagree with Trump’s approach to trade, but the president has suggested the nation’s economy is doing well enough to withstand any potential hits the US will take because of the trade war. Levy, however, has a different view.
“I think it’s never a good time to inflate job losses or slow down American growth,” he said. “I’m not sure it’s ever a good time to make a self-inflicted wound.”