Retail Recession – Biden Vs Trump: Self-Induced Or Fueled By The Feds?
The economy tightens, election day approaches – and retail pundits wonder if trade policies developed by the Team-Biden are working for or against the retail community. The Biden strategy has been to protect “labor” at all costs, but perhaps they miss the bigger picture and perhaps they have self-created international trade strategies that are increasingly regressive. You can’t, as trade policy, tell fashion retail buyers to vacate China – and block the exit doors at the same time. That’s just not how it works, and that’s what traders believe is happening today.
For months, the Federal Reserve worked feverishly to ban the word “transitory” from their lexicon. However, they left it in place long enough to do serious damage to America’s retail economy. Inventory, procurement costs, and inflation are sky-high – which has pushed the retail industry, once again, back into the no-fly zone. Government could help if they want to, but they deny and deflect any thought that there are issues with international trade.
Declining sales and weakening foot traffic are a bad sign, and layoffs – even worse, but consumer confidence did tick up in August (after a three-month decline) and several forecasts indicate that retail might be able to hold up through the Holiday season. However, operating costs are increasing and excess inventory needs to be sold off, so it’s anybody’s best guess the Holiday season will pan out and earnings will (of course) remain questionable until the final tally is in.
Looking at the bigger picture; former Team-Trump was a tough ride when it came to international trade. They had purpose and direction – even if they were (often) emotional and (at times) mis-guided. Team-Biden, on the other hand, is slow to react – or just plain stubborn on the trade issues. Their consistent non-activity is now having a negative effect on the retail community. At some point, the government will remember that consumer spending represents 70% of our national GDP, and everyone hopes that federal realization will come sooner versus later.
It does remain clear that the Administration has a plan to divert USA purchasing power away from China, and that being said – when retail attempts to move, the government seemingly blocks the effort. To share examples; several fashion retailers invested heavily in Ethiopia to develop product, but Team-Biden pulled their African Growth & Opportunity Act benefits away. Retailers headed to Myanmar, but a military coup and threats to pull their Generalized System of Preferences benefits have dimmed their hopes. Some retailers headed to Nicaragua, but now there is now a fear that the government will pull their Central American Free Trade Agreement benefits. Some retailers headed back to America, but rising inflation and proposed state laws restricting factory piece rate have some domestic manufacturers concerned.
The newly passed Uyghur Forced Labor Prevention Act (UFLPA) also targets retail goods, and that legislation has importers scrambling – because inbound goods can be turned away at American ports and, if the shipment is questioned, the importer of record is deemed guilty (before innocent) and needs to prove validity withing 30 days. This change is forcing some branded importers to switch their import status from DDP (Delivery Duty Paid) to FOB (Free On Board) in order to avoid being the importer of record – pushing addition carrying costs, and liability back to the retailers. Today, as a reality check to the fashion business: 97% of all apparel is imported and 37% of fashion apparel comes directly from China. The U.S. Government, by the way, does allow shipments from overseas to individual consumers with a value of up to $800 per person per day under the Section 321 De Minimis Rule that is free of duty, free of the extra Section 301 China tariffs, and avoids customs inspection (in general and under UFLPA) – which puts domestic USA retailers at a serious disadvantage.
The government, in addition to regular tariffs (that have been around since Smoot-Hawley in 1930), still also charges the extra (Trumpian) China 301 tariffs on bulk shipments each and every day – and has found little need to review the process – even after the tariffs technically expired this summer. Make no mistake, these extra China 301 tariffs have added to America’s inflation problem and the extra tariff collected from July 2018 to June 2022 is about $154 billion or about $3.2 Billion a month or (looking at 5 a day workweek) about $160 million a day. That amount, of course, is compounded and passed along at retail to the American consumer. In 2019, candidate Biden said: “President Trump may think he is being tough on China. All that he has delivered as a consequence of that is American farmers, manufacturers and consumers losing and paying more.”
Recently, the United States Trade Representative (USTR) Katherine Tai attended the Association of Southeast Asian Nations Economic Minister – USTR Consultations meeting in Siem Reap, Cambodia. She was asked about lifting the USA Tariffs placed on China and her response was telling: “These actions that we have taken with respect to China, which get a lot of attention, are not punitive in nature. The United States is not punishing China with tariffs, and I think that’s a really important point to make because tariffs are really a trade tool. They can be used in a lot of different ways. In some contexts, they are used as sanctions. These are not sanctioning tariffs. The tariffs that were put down in 2018 were really rebalancing tariffs; they are tariffs to try to level the playing field to overcome unfairness that we have seen and the impacts on the U.S. Economy. So that is a legal fact, but it is also a fact with respect to policy.”
The two lines that catch a fashion importers eye – are that we are not punishing China with tariffs and that these are rebalancing tariffs. Truth be told, the tariffs originated with former President Trump, and he said: “Until such time as there is a deal, we will be taxing the hell out of China.”
As a side note, for those focused on the 3% of apparel that is manufactured in the USA, it should be stated that the Government actually decided to enter into direct competition with some of these domestic factories. As mandated by law, the Berry Amendment states that uniforms for the armed services must be made in America, and that contracts will be awarded by the government. In an odd twist of fate, the Feds created an independent company called UNICOR to compete with domestic manufacturers. In 2021, UNICOR had sales of almost $128 million dollars of clothing and textiles – that they manufactured in federal prisons paying inmate labor approximately between $.23 and $1.15 an hour.
The bottom line is that if the government is serious about:
*Creating a better environment for retail
*Curbing retail inflation and
*Improving the retail supply chain
*Dump the punitive China 301 tariffs
*Improve the Section 321 direct-ship situation
*Work harder to enhance the ports
*Start looking at other countries for potential Free Trade Agreements – and stop blocking the exit doors for those that need to move their manufacturing from China
*Stop weaponizing trade – when dealing with countries that have political issues – especially with members of the African Growth and Opportunity Act or the Central American Free Trade Agreement
*Stop manufacturing garments in federal prisons and
*Renew trade agreements in a more timely manner – like the Generalized System of Preferences (GSP) and the Miscellaneous Tariff Bill (MTB) which have now been expired for almost two years
*In summary, from a retail perspective, Team-Biden’s international trade policies just aren’t working and something truly needs to be done.
As the great humorist Will Rogers said: “If you find yourself in a hole, stop digging.”