Tariffs & Trade: U.S. & China

Tariffs & Trade: U.S. & China

What You Need to Know

By: Hillary Oberpeul

Trade relations between the United States and China in the last year have been tense, to say the least. U.S. President Trump increased tariffs on Chinese made goods, such as machinery and components, earlier in the year, but just after U.S. and Chinese representatives met to discuss trade relations between the two countries, he announced a new 10% tariff on even more Chinese exports. This 10% tariff will affect consumer goods like cell phones, shoes, apparel, toys and more—and approximately $300 billion of exports would fall under these categories.

So what do we know right now?

It All Starts in September

President Trump’s additional tariff on Chinese goods is going into effect September 1st. This announcement had an almost immediate effect on the U.S. economy, with a drop in points on the DOW that matched its earlier gain for the day. This shift in the market didn’t just affect the U.S. though. Across Asia and Europe, numbers dropped following the surprise announcement of tariff increases, only recovering slightly a day later.

There Will Be Two Phases of Tariffs

While the first announcement in early August stated that the tariff would go into effect all at once, the Trump administration announced August 13th that there would be two phases of tariffs, pushing the second set back to a December 15th date. The United States government stated the reasoning behind this shift was to protect American consumers before the holiday season. However, the increased tariffs on tools, apparel and some footwear will still begin on September 1st as planned.

For the sock industry, and Pacific Manufacturing in particular, that means that all cotton and wool socks will receive the increase in tariffs starting September 1st, while polyester won’t be affected until December 15th. To see all items affected by the September 1st date, click here. For those affected by the December 15th date, click here.

The Value of the Yuan Will Come Into Play

It was in response to the initial market shift that caused China to allow the Yuan to fall below the “psychologically important point of 7 renminbi to the American dollar,” according to a report in the New York Times. But what does that actually mean? That the Yuan is sitting at the weakest point it has in nearly a decade—and that could inherently weaken the impact of the tariff increase. The crux of the issue is understanding how much the value of the Yuan will affect the tariff.

In the sock industry, it’s believed that the exchange rate will absorb half of the proposed 10% tariff increase on China’s side. After that, supply chains, wholesale, and retailers will have to find a way to split up the additional half. Read: things could get more expensive for our industry. Just how much more expensive, we aren’t currently sure. That will depend upon the exact amount of the tariff, and the exact reduction of the value of the Yuan at the time the tariff goes into effect.

The Tariff Could Potentially Increase to 25%

However, until the list for products affected by the 10% tariff is confirmed, no one can really know what will be affected by a move to 25%—or even if it will happen. As more information becomes available, it will be easier to tell what the future of this tariff landscape will look like.

At the End of the Day, Time Will Tell

The United States and China are continuing to move forward with trade relations, which means that things could still change before September. As the two countries go back and forth, it’s unclear what the outcome will be, but we look forward to gaining more information.

Want to Stay Up to Date?

Check this list for a full breakdown of the updated tariff plan, plus resources about tariffs and contacts for more information.

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