US, China Agree To Suspend Planned Tariff Increase

A détente has been reached in the ongoing trade war between the U.S. and China. President Donald Trump has agreed to suspend a previously-planned increase of import tariffs on $200 billion worth of Chinese goods. That increase was set to begin on January 1, 2019. Reaction in the promotional products industry, which imports the vast majority of the items it sells from China, was mixed.

Per the agreement, the Trump administration will hold off on boosting tariffs from 10% to 25% for at least 90 days, Newsweek reported. During that timeframe, Washington will continue to negotiate with Beijing to resolve ongoing trade tensions. However, if the parties are unable to reach an agreement after the three months, the 10% tariffs will indeed be raised to 25%.

Import tariffs are a major issue for the promotional products industry, so the development in trade talks between the US and China garnered ample attention from promo executives.

“This is a hugely positive, but likely short-term development, for our industry and the global economy,” Eddie Blau, CEO of Top 40 supplier Innovation Line (asi/62660), told Counselor. “A 15% additional tariff increase would have been a tremendous blow to continued promo industry growth. I believe China will make enough concessions to satisfy the Trump Administration and avoid the further increase. However, I wouldn’t bet on the current 10% rates going away in three short months. This is a long-term and contentious negotiation.”

David Nicholson, president of Top 40 supplier Polyconcept North America, suspects that the stay on the tariff increase will make things a bit easier for the promo market to start the year. Nonetheless, “suppliers will still need to increase prices, but at more moderate levels, which should help keep the current market momentum going. In terms of the broader economy, we remain in a situation with a great deal of uncertainty. I’m not sure that is going to change any time soon. As long as this exists, businesses will be hesitant to make long-term investments and will likely take a ‘wait and see’ approach. That is never good for the overall health of the economy.”

Meanwhile, Paul Lage told Counselor that the 90-day extension lengthens uncertainty for the promo products marketplace. “Many products take longer than 90 days from purchase order to receipt,” said Lage, president of Top 40 supplier IMAGEN Brands(asi/93990/47700). “Pricing to the end-user can be variable, especially for custom overseas orders.” Even if tariffs don’t rise to 25%, Lage anticipates that they will be in place, in some form, through 2019 – a negative for the branded merchandise industry. “There’s a list of issues between the two countries that’ll take years to resolve,” Lage told Counselor.

Executives at Top 40 supplier BIC Graphic (asi/40480) said they’re hopeful that the 90-day hold on the tariff rate increase signals a de-escalation of the trade war, but added that the full implications for the promo industry won’t be known until negotiations are complete. In the interim, the firm is aggressively marketing that its product portfolio contains a wealth of items made outside China. “Nearly 50% of BIC Graphic’s order volume is produced in our U.S. facilities, and we have product sourced from other areas (Korea, Vietnam, India) to provide additional options that will not be impacted by potential tariff increases,” said Melissa Ralston, chief marketing officer at BIC Graphic.

In return for the stay on the tariff increase, China will agree to purchase a not yet agreed upon, but reportedly substantial, amount of agricultural, energy, industrial products and more from the United States “to reduce the trade imbalance between our two countries,” according to the White House. In addition, China has agreed to designate Fentanyl – one of the drugs driving the opioid crisis in the U.S. – as a Controlled Substance, meaning that individuals selling the drug to the U.S. would be subject to China’s maximum penalty under the law. “The principal agreement has effectively prevented further expansion of economic friction between the two countries,” Chinese Foreign Minister Wang Yi told the media.

Investors around the world are breathing a sigh of relief, as stocks and oil jumped on Monday, CNN reported. Major indexes in Hong Kong and Shanghai grew more than 2.5%, and stocks were up 2% or more in London, Frankfurt and Paris. Crude oil spiked by more than 4%. “The good news is that this truce should be seen as Washington recognizing the potential damage on the US economy if tariffs escalate further,” Tai Hui, chief market strategist for Asia Pacific at JPMorgan Asset Management, told CNN.

The deal came as a result of Trump meeting with China’s President Xi Jinping during the G20 Summit in Buenos Aires over the weekend – the first face-to-face meeting between the two leaders since the trade war erupted in July. The Trump administration has already imposed tariffs on about $250 billion worth of imported Chinese goods, affecting approximately 6,000 items. Trump has pushed for these tariffs as part of an intellectual property investigation of Chinese high-technology companies. As for China, the total amount of U.S. products subject to Chinese tariffs comes out to $110 billion, which is 85% of U.S. goods that entered China last year.

The damage has already been done to the world’s second-largest economy, as China’s manufacturing sector failed to expand for the first time in more than two years in November. China’s National Bureau of Statistics said the stagnation was a result of “trade frictions” with the United States and a weakening global economy.

The promotional products industry has been keeping a close eye on the trade war, fearing that tariffs will cause increased product costs, price fluctuations, supply chain disruption and thinner margins. At the ASI Power Summit in October, a majority of surveyed industry leaders forecast the anticipated price jumps to be along the scale of 11% to 20%. So far, headwear, bags, keychains, technology products and accessories, certain drinkware (including stainless-steel items), stationery, coolers, cases and some outerwear are among the items suppliers and distributors anticipate will be affected by tariff-driven price increases.

Christopher Ruvo contributed to this report.

CORRECTION:
An earlier version of this article said that Top 40 Distributor Kaeser & Blair (asi/238600) did not include pricing in its 2019 catalog. That is incorrect. K&B’s Best Buys catalog is indeed carrying pricing.

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