Companies warn trade war with China about to hit consumers

U.S. companies are speaking out against President Trump's escalating trade war with China, with major players such as Walmart saying tariffs are forcing them to raise prices on consumer goods for Americans.

The price hikes could complicate things for Trump as the 2020 campaign picks up. The president has repeatedly asserted that China, and not U.S. consumers, would pay the price of the trade war.

“There are some places where, as we get tariffs, we will take prices up,” Walmart Chief Financial Officer Brett Biggs said Thursday in an earnings call.

Macy’s CEO Jeff Gennette issued a similar warning, saying another round of tariffs would almost certainly hit consumers in their pocketbooks.

“When you do the math, it’s hard to find a path through that wouldn’t impact customers,” he told investors and analysts on Thursday. “It will affect a lot of apparel and accessories categories.”

Trump has imposed tariffs on China in stages, starting in July when he targeted $50 billion of imports. He later added $200 billion of goods to the list.

Last week he raised tariffs from 10 percent to 25 percent on the $200 billion of goods, and on Monday threatened to impose tariffs on the remaining $300 billion of goods imported into the U.S. from China.

Retailers say they have bent over backwards to avoid increasing prices up until now, but that the latest round has left them with few options.

Ed Weinstein, vice president of tax and government affairs for the retail chain Jo-Ann Fabric, said his company navigated the first rounds of tariffs by looking for alternative source materials, negotiating with suppliers and cutting margins. But those options are largely exhausted, he said, in the face of 25 percent tariffs.

“At 25 percent, we will need to pass on the pricing to our consumers. We’re not happy about that, but that would just be the reality, and we anticipate that the increased pricing could lead to reduced profit, which could lead to store closings and employee layoffs,” Weinstein said.

Trump is betting that an increase in consumer prices won’t sour voters amid strong economic growth and the lowest unemployment rate in 50 years.

But company heads argue that more tariffs will eat into economic growth.

“We know that employment is good now, but if companies are forced to lay off employees that would turn the economy in the other direction,” said Weinstein.

The National Retail Federation (NRF) estimates that the latest round of tariffs will raise the cost of the trade war to $750 a year for the average family of four, and shave as many as 1 million jobs from payrolls nationwide.

If Trump follows through with the next round, that cost would rise to $2,300 a year, and kill twice as many jobs, according to NRF projections.

“The last thing any retailer wants to do is raise prices, but if you’re talking about a 25 percent tariff, there’s only so much the supply chain can absorb,” said David French, senior vice president for government relations at NRF.

For business leaders, Trump’s assertion on Twitter that “there is no reason for the U.S. Consumer to pay the Tariffs” fails to resonate.

“Saying that China is paying these tariffs doesn’t hold water,” said French.

Trump expects the higher tariffs to force China into striking a deal, but an agreement isn’t expected anytime soon. In announcing the new tariffs, Trump accused China of backtracking on previously agreed-upon positions in the negotiations.

China has since hardened its position, with officials sounding off in state-run media against the U.S., tariffs and the trade negotiations.

Chinese Commerce Ministry spokesman Gao Feng called the tariffs "bullying behavior by the United States,” in the state-run Xinhua news service.

“It is regrettable that the U.S. side unilaterally escalated trade disputes, which resulted in severe negotiating setbacks," Gao said.

But as Trump ramps up pressure on Beijing, he has shifted gears on other trade battles that could mitigate some of the harm to U.S. consumers from the China trade war.

On Friday, he announced a deal to lift steel and aluminum tariffs on Mexico and Canada.

He also decided to postpone proposed tariffs on automobiles for six months, preventing a major price hike and retaliation from trading partners such as the European Union and Japan.

Even with the extra breathing room, Trump will be under pressure to strike a deal with China in order to keep the economy humming heading into the 2020 election.

“In the end, you want an agreement,” Sen. Rob Portman (R-Ohio) said this week in a Fox News interview. “The agreement is lowering tariffs on both sides and getting rid of some of these so-called non-tariff barriers to having fair trade between the United States and China.”

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