- Dani
- Nov 20, 2024
- 5 min read
“We’re going to lower taxes for companies that are going to make their products in the USA. And we’re going to protect those companies with strong tariffs.”
Donald Trump
Once again, tariffs are making headlines.
Import levies were a hallmark of Donald Trump’s first term in office and created significant upheaval within the promotional products sector for years.
Now, as president-elect, Trump is preparing to escalate his tariff strategy in his second term. He has committed to implementing duties ranging from 10% to 20% on all imports into the U.S., with an even steeper 60% or higher tariff on goods from China.
The promotional products industry imports nearly all the items it sells in the U.S., so the market has been rife with discussions about tariffs ever since Trump defeated Vice President Kamala Harris in the presidential race on November 5.
Although the exact details of Trump’s approach to import duties and how swiftly he will act once he takes office in January are still uncertain, there are key questions that can be explored now. Here’s an overview of the current status on five major tariff-related issues.
88% of suppliers who import product do so from China. Only 22% of importing suppliers do so from Vietnam, the second-ranked country.
Q: What Are Tariffs and Why Does Trump Favor Them?
A: Tariffs are taxes imposed by the government on imports or exports, generating revenue and potentially regulating trade. For imports, tariffs are seen as a way to protect domestic industries by making foreign goods more expensive, thus preventing local businesses from being outpriced by overseas competition.
Trump has called tariffs "the most beautiful word" and views them as a powerful tool in international trade relations. He believes tariffs will encourage U.S. manufacturing, boost job growth, and help fill the revenue gap caused by his proposed tax cuts for businesses and households. Trump has also stated that these tariffs could revive industries like steel, promising to lower taxes for U.S.-based manufacturers while protecting them with strong tariffs.
However, analysts argue that tariffs can harm U.S. businesses and consumers. Retailers relying on foreign production have warned they will pass the added cost of tariffs on to consumers. The National Retail Federation estimates that Americans could lose $46 billion to $78 billion annually in spending power if Trump follows through with his tariff plans. Additionally, studies show that a 60% tariff on Chinese goods and a 20% tariff on all imports could cost the average U.S. household an extra $2,600 a year. The Peterson Institute for International Economics also predicts that Trump's tariff policies would reduce incomes for lower- and middle-income households by 3.5% to 5% annually.
“We’ll continue to reduce our exposure to China, as we have done for over 10 years now, and continue increasing the diversity and resilience of our supplier base.”
Jose Gomez, Edwards Garment
Q: If Intensified Tariffs Are Enacted, Will Suppliers Increase Prices?
A: Yes, it is highly likely that increased tariffs will lead to price hikes in the promotional products industry. The exact increases will depend on factors like tariff rates, the country of origin for the products, and a supplier's ability to absorb additional costs.
Some executives believe China might devalue its currency to offset tariff costs, but this remains speculative. Overall, the expectation is that more tariffs will lead to price increases for promotional products in North America.
“If new tariffs are introduced, we will need to adjust our prices accordingly to maintain margins,” says Yuhling Lu, CEO of Ariel Premium Supply. Price adjustments will depend on the specifics of the tariffs and any additional costs in the supply chain. Some industry leaders predict price hikes will be product-dependent. For example, Jing Rong, Vice President at HPG, expects some products to experience price increases, but not all.
Meanwhile, a C-suite executive at a major supplier expects that if tariffs rise, they’ll be forced to pass the costs onto customers. Distributors will then need to decide whether they can absorb the higher costs or pass them on to clients. Some industry executives are concerned that higher product prices could push clients to alternative options like gift cards.
“No other country [than China] has the infrastructure to support what is required to manufacture the hard goods that we supply, and if they do the quality is terrible.”
Trevor Gnesin, Logomark
Q: Will Companies Relocate Manufacturing – Including to the U.S.?
A: While tariffs could incentivize some reshoring of promotional product manufacturing, a large-scale return to U.S. production is unlikely. Executives agree that the U.S. lacks the infrastructure, labor force, and cost-effective manufacturing conditions required to produce promotional products at scale.
Instead of a "Made-in-the-USA" resurgence, many suppliers will likely continue diversifying production in countries outside of China. This shift began before Trump's first term and accelerated due to the trade war and supply chain disruptions caused by the COVID-19 pandemic.
For example, some suppliers are increasingly sourcing from other Southeast Asian countries. HPG, for instance, has been expanding its supplier base beyond China. Similarly, BlueMark, a distributor based in California, has been establishing partnerships with manufacturers in Mexico to reduce dependency on Chinese products.
While shifting production to countries like Mexico may reduce exposure to Chinese tariffs, it doesn’t eliminate the risk of tariffs entirely, as Trump has proposed duties on imports from other nations as well. However, tariffs on other countries may be lower than those imposed on China.
“By communicating early, we’re helping clients plan accordingly while maintaining transparency.”
Josesph Shusterman, BlueMark
Q: How Are Distributors Addressing the Possibility of New Tariffs?
A: Distributors are taking different approaches to prepare for potential tariffs. Some are adopting a "wait and see" approach, while others are already making plans and communicating with clients.
BlueMark has started notifying clients about potential price increases due to tariffs, maintaining transparency and helping customers plan ahead. The company is also exploring ways to minimize tariff impacts, including utilizing Section 321 of the U.S. Trade Act, which allows for duty-free imports of up to $800 per person per day.
Fully Promoted is also preparing for possible price increases but plans to wait until more details are available before taking any action. They are focusing on keeping franchise owners informed and providing resources to help them navigate potential changes.
Other distributors, like Whitestone Branding, are preparing similar strategies, including creating "Tariff FAQs" for customers to address any concerns related to the new duties.
$74 Billion
The total duties paid on U.S. imports in 2020 following President Trump’s tariff actions in his first term. That figure doubled from $37 billion in 2015.
(Congressional Research Service)
Q: Does Trump Have the Authority to Impose Tariffs? When Might He?
A: Trump asserts that he has the authority to enact widespread tariffs, but his plans could face legal challenges from businesses and industry groups, as well as resistance from Congress.
During his first term, Trump used Section 301 of the U.S. Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962 to impose tariffs on Chinese goods and steel/aluminum imports. However, his broader tariff plans for his second term could exceed the scope of his previous actions, leading to potential legal pushback.
Lawsuits are already being prepared, with industry groups like the Consumer Technology Association planning to challenge the new tariffs in court. Some analysts suggest that these challenges could drag on for years, but Trump may push forward with his plans, potentially enacting tariffs before legal battles are resolved.
The total duties paid on U.S. imports doubled from $37 billion in 2015 to $74 billion in 2020 during Trump's first term. Some industry experts believe that Trump will follow through with his tariff plans quickly to avoid an economic inflation spike, though others expect him to pace his tariff actions to keep them as leverage in international trade.
In any case, the potential for higher tariffs looms, and businesses in the promotional products sector are advised to prepare accordingly to mitigate risks.
Link to Original Article on ASI
