PPB July 2019

lingered of extending the tariffs to virtually all Chinese imports—more than half a trillion dollars—should the two sides not come to a satisfactory agreement. This latest turn in the ongoing trade dispute has roiled markets and raised questions throughout the promotional products industry. When the threat of adding tariffs on products imported fromMexico was announced in late May, it stunned industry suppliers and distributors who were already dealing with the impact of the Chinese tariffs. Mexico is one of the U.S.’s largest trading partners, surpassing China and Canada in the first three months of 2019. While the majority of imported promotional products come fromChina, a percentage are imported from other countries, including India, Vietnam and Mexico. Fortunately, the Mexico tariff was lifted just days before it would have gone into effect, but the China tariffs continue to confound suppliers and distributors who are trying to find their way through it. In May, the U.S. Trade Representative (USTR) announced a proposed List Four of Chinese imports upon which tariffs will be levied on approximately $300 billion in additional products, representing almost all imports fromChina not already covered under the previous tariff lists. As this issue went to press, the USTR was due to complete the public hearing and comment period on June 25 on the List Four tariffs and a final decision on the tariffs’ implementation was expected soon. “PCNA has submitted comments in opposition to the List Four tariffs,” says Larry Whitney, director of global compliance at supplier Polyconcept North America. “While in Washington with L.E.A.D., I brought up the costs related to List Four, and why it’s bad for our business, in every meeting that I had on the Hill. I’ve also had subsequent calls with one of the Pennsylvania senator’s staff members to go into more detail on the potential impact to PCNA.” Whitney adds, “If List Four goes into effect it will have a horrible impact on our industry. While some of the suppliers have made efforts to diversify out of China, many have not, and there is not sufficient manufacturing capacity out of China to replace the Chinese factories.” Brett Cutler, vice president of sales at supplier Greater China Industries, says, “Most promotional products come from China and the pending next tariff that taxes essentially everything fromChina will be more damaging than we have seen thus far. However, an interesting occurrence is taking place around the world and that is the more important element to be aware of. Almost every other manufacturer of goods around the world has had to compete against factories in China and Mexico for market share. They’ve had to reduce profit margin to remain competitive. With a 25-percent tariff on goods fromChina, everyone else is raising—or saying they are about to raise—their prices, because they can. Especially factories in East Asia—we see prices rising, in part, because they source rawmaterials fromChina and these Chinese suppliers have raised rates. But, also because they are competitive now by a significant amount, and they know they can charge us more and still be less than China prices with the tariff.” Cutler adds, “Combine the tariffs and the response of factories in other countries and all we have done is drive up the cost of goods we use everywhere in our industry and economy. And, we all know that once prices are high, it will take a long time for them to come down to where they were. So, it’s all tied together. While tariffs are good negotiating tactics, they are not a very good long-term solution. Hopefully the shared pain in each country will be enough to move all parties to a solution quickly.” Changing Client Conversations The tariffs are also requiring additional communications with clients on both sides of the industry to prepare them for possible pricing fluctuations. Richard Anderson, owner of distributor AAAA Designs LLC in Morrison, Colorado, replied to a post on PPAI's Promo Connect about the verbiage he is using when communicating with clients “It’s all tied together. While tariffs are good negotiating tactics, they are not a very good long-term solution. ” Brett Cutler , vice president of sales at supplier Greater China Industries On July 6, 2018, the tariffs became a reality with $34 billion worth of Chinese goods subject to tariffs . FEATURE | The Tariff Effect 56 | JULY 2019 |