A trade war bubbling up between the U.S. and China has suddenly gone still.
As trade negotiations between the world's two largest economies have continued, China said it will cut its import tariff on automobiles from 25% to 15% beginning on July 1, a move that China’s Ministry of Finance noted as an "important measure in further opening up" the country's economy, The Wall Street Journal reported Tuesday. It's also a move that may help diffuse tensions that over the last several months have resulted in tit-for-tat tariff threats between the two nations.
The announcement comes less than a week after dozens of trade groups and corporate leaders — including many in the retail space — convened in Washington D.C. over the course of three days to testify before the United States Trade Representative on the potential impact of President Donald Trump's previously announced plan to impose at least $50 billion in tariffs on China. The administration has threatened up to $150 billion in tariffs against the country in recent months in response to China's "forced transfer of U.S. technology and intellectual property."
But on Sunday, Treasury Secretary Steven Mnuchin told Fox News that the U.S. was "putting the trade war on hold" and therefore pausing the implementation of tariffs while the countries negotiated. Later that day, however, U.S. Trade Representative Robert Lighthizer put out a statement declaring that tariffs were still an important tool to protect technology. The tariffs are expected to be put off at least until after the June 12 summit between President Trump and North Korean leader Kim Jong Un, a person familiar with the administration's deliberations told The Wall Street Journal.
The messages are conflicting for those in the retail space, many of which are concerned that tariffs are still on the table and could dramatically rattle global supply chains and lead to increased prices on consumer products.
In a series of tweets on Monday, President Trump expressed optimism that tariffs will come down between the countries and that China will agree to a substantial reduction of its trade deficit by buying more American exports, specifically from the agriculture industry. The administration has demanded the country buy $200 billion more of American goods by 2020, however, press releases put out by both sides following the talks did not contain a numerical target, according to the Journal.
China has agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products - would be one of the best things to happen to our farmers in many years!— Donald J. Trump (@realDonaldTrump) May 21, 2018
Under our potential deal with China, they will purchase from our Great American Farmers practically as much as our Farmers can produce.— Donald J. Trump (@realDonaldTrump) May 21, 2018
Some critics say asking China to buy billions more in goods is unrealistic and signals that talks are far from over. "The fundamental problem with the idea that China could reduce the trade deficit by $200 billion by buying more is that the U.S. economy simply cannot produce enough new goods for China to buy anytime soon," Amitrajeet A. Batabyal, a professor of economics at the Rochester Institute of Technology, wrote in an op-ed in The Conversation. Apart from the implausibility from an economic perspective, he added that the U.S. should be skeptical of China's end of the bargain considering the country has pulled back on previous promises.
While tariffs may be on hold, retail interest groups know it's not over. Tuesday is the deadline for submission of post-hearing rebuttal comments and it is unclear whether there will be further dialogue with parties involved before an official decision on the tariffs has been reached.
During the hearings, a number of retail trade groups and companies testified against the tariffs broadly, as well as against the inclusion of specific products. Groups like the National Retail Federation and the Retail Industry Leaders Association focused their testimonies overall on the complications that tariffs could pose to global retail supply chains and the fact that tariffs on consumer goods like mini refrigerators, TVs, smart thermostats and other products would likely be passed on to the consumer.
"Our members are now in the final stages of making purchasing decisions for the all-important holiday shopping season. Back-to-school merchandise will be arriving at U.S. ports in the next couple of weeks and holiday merchandise — already on order in most/many instances — will start to arrive at the end of the summer," David French, senior vice president of government relations at NRF, said in a testimony last week. "The sudden imposition of tariffs on any of these goods will likely be passed along to U.S. consumers."
In a separate testimony, Mike Mohan, the senior executive vice president and chief merchandising and marketing officer of Best Buy, called on the USTR to remove flat panel televisions from the list of products subject to Section 301 tariffs, adding that the vast majority of TVs between 30 inches to 46 inches it imports come directly from China.
"There is no manufacturing capabilities today and in the near term availability to actually build TVs in the United States. The only thing that exists currently is a small assembly facility that will be able at capacity, if it runs at capacity, to build and produce less than 3 million televisions. The U.S. demand on an annual basis is in excess of 35 million TVs," he said in response to a question from Ari Sulby of the state department.
While the current list of products to be taxed would not affect textiles, footwear or travel goods, the American Apparel and Footwear Association rose concerns that they could be suggested to be added to the list in the future. The group is also concerned with tariffs on machinery imported to the U.S., such as circular knitting machines for hosiery, loom weaving machines and other textile manufacturing equipment.
For weeks, groups like RILA have been calling for more transparency into the administration's algorithm that selected the products on the potential tariffs list. Hun Quach, vice president for international trade at RILA, told Retail Dive that the biggest concern she's hearing from members of the trade group is that they have no alternate means of sourcing some products. "Shifting supply chains cannot be done overnight," she said.
"Our message to the administration has always been that tariffs are not the answer and at the end of the day will only be paid for by American consumers," Quach said. "We want to make sure American consumers don't suffer the collateral damage when it comes to these tariffs."