Retail alert – Trump’s party is targeting your supply chain

The Republican convention in Milwaukee last week had some interesting ideas, but they have certainly put the American retail community on high alert about their soon-to-be-imperiled supply chains. Chapters 3 and 5 of the Republican platform are staunchly pro-American, but clearly anti-trade.

While it’s common to denigrate international trade during election rallies, this sensitive issue takes on a whole new dimension when tariffs and sourcing locations are part of a political agenda. Retailers are taking notice, and some are changing their future plans.

Chapter 3 of the Republican platform is more cautious and progressive – it is about “fair and reciprocal trade agreements,” which are not necessarily a point of contention and something that the Biden/Harris team has been lacking.

While former President Trump disrupted international trade, he achieved positive results by modernizing NAFTA with the USMCA and (initially) the Phase 1 trade agreement with China. On the negative side, the former president imposed inflationary tariffs that ultimately led to the collapse of some supply chains.

The Biden/Harris team, on the other hand, feared being weak on its China policy and continued Trump’s unpopular retail tariffs while putting the brakes on any new international trade. To date, the administration has yet to achieve anything positive on trade. They also sat out the expiration of GSP and MTB and were (reasonably) not involved in the movement to extend AGOA/Haiti early. In summary, Trump is probably guilty of doing too much on trade, while Biden/Harris did too little.

Chapter 5 is the real point of the Republican platform that concerns retailers. Under the guise of an “America First” economic policy – put in place to protect American workers and farmers from unfair trade – the plan is to rebalance trade, secure strategic independence, and revive domestic manufacturing. That certainly sounds promising, but the platform goes on to suggest that they will support base tariffs and pass the Trump Reciprocal Trade Act. This point also states that “as tariffs on foreign producers increase, taxes on American workers, families, and businesses can decrease.” For retailers who source their goods from China, point 2 in Chapter 5 suggests that Republicans plan to remove China’s most-favored-nation status and phase out imports of essential goods. This would, of course, result in high inflation rates for the American consumer and would force those who source their goods from China to seek alternative countries, as opportunities for “Made in America” remain limited in certain retail categories – particularly low-cost/labor-intensive items such as apparel and footwear.

Retailers are well aware that former President Trump has expressed interest in imposing a 10% tariff on all imports (from all countries), and are also painfully aware of the proposed 60% tariff on imports from China. Despite knowing all this, many retailers are still blocking reality and have not yet decided what measures they need to take to protect their supply chains. Truth be told, when candidate Trump became president, trade wars and tariffs did indeed occur, so it is quite likely that the former president (if re-elected) will focus on tariffs – and this will be one of his higher priorities. The problem in this scenario is that lower-income households will be penalized, while higher-income individuals will be less affected, as prices of cheaper commodities will surely rise. Trump also floated the idea of ​​replacing income taxes with tariffs, which, while not a new idea, would be even more painful for lower-income individuals.

In the 19th century, the American government actually funded itself through import tariffs—until the income tax was first introduced in 1913. So when former President Trump suggests that he might want to eliminate income taxes and replace them with tariffs, that idea has actually been tried before. However, the world has changed a bit since 1913, and a switch to “switch” would likely be disastrous for the economy, as it would result in an unimaginably high tariff rate—possibly more than 70%.

In modern times, the changing patterns of capital spending in the world of international cooperation and any change in consumption habits continue to have a disruptive effect on retail. The former president loves to talk about tariffs, and by now everyone has a good idea of ​​their inflationary power and ability to disrupt existing supply chains. One can be sure that if Trump is re-elected, tariffs will play a central role in his second term – primarily as a foreign policy tool – and will likely be directed against China.

Retailers are a smart bunch. They analyse the terrain, adapt and survive. However, in the current economic environment (especially with high interest rates), it remains quite difficult for retailers of any size. If a government wants to be friendly to retail, it must focus on international trade relations and choose product sourcing that is neither dangerous nor burdensome. It is one thing for a government to advise retailers, brands and sourcing groups to leave China, but if it blocks their access to other countries, there can only be a bumpy road ahead.

When the Smoot-Hawley tariffs were imposed in June 1930, following a similar protectionist policy (as the Republicans are pursuing today), these measures enabled the Great Depression by driving up the cost of goods. As a reminder for those who may not get the point, it was during this time that the great American humorist Will Rogers said, “When Wall Street went into a tailspin, you had to wait in line to get a window to jump out of.”