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Tangerine White Paper: U.S. Tariffs on Chinese Imports

Tangerine White Paper: U.S. Tariffs on Chinese Imports

Overview: On Thursday, March 22, 2018, the United States announced its intention to impose up to $60 billion in tariffs on goods imported from China. In 2017, a total of $506 billion in goods were imported from China, meaning that the tariffs represent over 10% of the total annual value of Chinese imports. The details of the planned tariffs have yet to be identified. A list of targeted goods will be published within 15 days and then a 30-day public comment period will follow. The tariffs are newsworthy, but not surprising; a central tenet of President Trump’s campaign platform and rumors of looming tariffs have long been swirling.

Immediate Aftermath: Even with few details known at this point, the immediate market reaction was severe. The S&P fell by more than 4.5% and the Dow fell more than 1,100 points from the time of the announcement until the close of trading on Friday.  China responded with an announcement that it would be imposing its own reciprocal tariffs of $3 billion on US exports such as fruit, wine, and steel pipes. There was much resulting consternation about a tit-for-tat exchange of countermeasures that could spiral into a trade war.

Impact on Consumer Goods, Promotional Products and Point-of-Sale Items: When revealed, it is expected that the planned tariffs will include more than 1,000 product types.  The promotional products industry encompasses a wide range of products, making it a near certainty that at least some promotional products will be impacted.  Many are speculating that some of the impacted product categories could include apparel, electronics, drinkware, and toys.

The potential fallout of the tariff policy includes likely cost increases for a number of different consumer goods, promotional products and point-of-purchase items.  The tariffs, when combined with the weakening USD to RMB FX rate over the last year, will hurt many suppliers. It underscores the need for relationships with nimble suppliers with diversified manufacturing supply chains.

Long-Term Outlook: It would be irresponsible to speculate with specificity before the list of tariffs has even been announced. While an all-out trade war seems unlikely, each salvo creates price pressures and introduces instability into the marketplace. Overall, we would advise measured expectations informed by a number of factors that suggest the tariffs will be less significant in the near term than many anticipate. In general, despite President Trump’s campaign rhetoric about China, his White House has been surprisingly warm towards the Chinese and its President Xi Jinping. The 30-day public comment window allows plenty of time for moderating forces to water down whatever is eventually put in place. Among those forces are the numerous industry associations such as the Promotional Products Association International, Travel Goods Association, and Retail Industry Leaders Association, all of which are mobilizing coordinated efforts to advocate on behalf of a more restrained tariff policy.

Tangerine:  The proposed tariffs pose a novel challenge for all companies that rely upon overseas trade and stable markets. In today’s global economy, most companies fit that description to some degree. The promotional products and point-of-sale industries in particular are susceptible to market volatility and supply chain disruptions, as so much of the end-product originates overseas.

While Tangerine has a substantial China sourcing operation, we are actually comparatively well-situated to navigate both market volatility and most supply chain disruptions that could arise on the global stage.  As a subsidiary of the Superior Uniform Group, a multinational corporation with over $260 million in revenue in 2017 alone, Tangerine has a unique ability to leverage a mature global sourcing operation that has scant few rivals in the industry. Together, Tangerine and Superior maintain a diverse set of product and service offerings that do not depend upon any single manufacturing stream. We manufacture across the globe, with offices and factories throughout North, Central, and South America, as well as across Asia and Africa.

Regardless of the specifics of the eventual tariff policy, Tangerine is well positioned to continue to stand out in the industry. Our marketplace advantages are heavily rooted in technological superiority, strong creative and design services, carefully cultivated client relationships, and creating value through thoughtful and effective promotional campaigns. None of those advantages are dependent upon specific products or conditions in the global manufacturing marketplace. While volatility in that marketplace is certainly undesirable, we are well positioned to navigate choppy waters.

Although fears of a trade war with China had slightly eased as of Monday, March 26, and U.S. stock markets were sharply up, we will continue to closely observe as more details are made public about the proposed tariffs and will provide updates as necessary.

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