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Maine Pointe CEO Steven Bowen quoted: Tranche 4 tariffs by the numbers

Originally published in Supply Chain Dive

A false sense of comfort after months of trade truce has left many businesses unprepared for the new tariff list, which covers nearly all previously untaxed Chinese imports.

A relatively calm trade environment suddenly turned stormy earlier this month after a Sunday night tweet from President Donald Trump. The long-anticipated tariff hike on $200 billion worth of imports became reality on Friday, May 10, as the duty rate rose from 10% to 25%.

Although the sudden move took businesses by surprise, it paled in comparison to the level of shock when the president called for tariffs on nearly all remaining imports from China, known as "tranche four." The U.S. formally began the process for a fourth round of tariffs on $300 billion worth of imports this week. Products on this list could face duties up to 25%.

"If tariffs are set to 25%, the effect will be dramatic," Johan Gott, principal in the consumer and retail practice at A.T. Kearney and head of its Trade Wargaming initiative, told Supply Chain Dive in an email. In this situation, nearly every good imported from China will face a duty of 25%.

"Not all tariffs can be mitigated. But well prepared companies can get ahead of the competition if they are sufficiently prepared," Gott said.

The overwhelming sentiment from analysts is very few companies are well prepared to handle tranche four tariffs.

"I think companies falsely relaxed a little bit hoping for an agreement" between the U.S. and China, Maine Pointe CEO Steve Bowen previously told Supply Chain Dive. He said many supply chains lack optionality, the ability to have several viable suppliers in their sourcing base and shift quickly and with agility when needed.

National Retail Federation President and CEO Matthew Shay told CNBC companies have little "leverage and wiggle room" to make supply chain adjustments and absorb higher costs.

Industries such as apparel and footwear and electronics already operate on "razor thin margins," Gott said, leaving them no choice but to pass costs on to their customers or to consumers. "As we move to tranche four, we are seeing an inevitable focus on consumer goods which will have a very different dynamic," he said.

The numbers below demonstrate the impact tranche four — if and/or when it takes effect — will have on industries and the U.S. economy as a whole.

  • $300 billion
    The value of imports proposed on the latest list of goods to face tariffs. The Office of the U.S. Trade Representative released the list Monday, May 13.
  • 3,805
    The number of product categories included on the list valued at $300 billion.

  • 32
    Days until the section 301 committee convenes a public hearing on the list of products.

  • 1.1%
    The degree to which U.S. GDP is estimated to fall with tranche four tariffs, along with existing China tariffs and retaliatory tariffs, in place, according to the Trade Partnership.

  • 14
    The number of times Macy's executives mentioned tariffs in its most recent earnings call May 15. CEO Jeff Gennette called tranche four "the big one" and said the tariffs are likely to have "customer impact."

  • 59%
    The percentage of footwear sold in the U.S. imported from China in 2017, according to the World Bank. Nearly all footwear sold in the U.S. is imported. Vietnam accounts for 19% of U.S. footwear imports.

  • $198.6 billion
    The value of machinery and electronic imports in 2017. The category is the highest by value of U.S. imports from China, followed by consumer goods at $195.8 billion.

  • $71.8 billion
    The value of cell phones and household goods imported to the U.S. in 2018, the highest value of all product categories, according to Census Bureau Data.

  • 100%
    The percentage of toys and sports equipment that would face duties if the administration implements tariffs on the remaining $300 billion worth of goods.

  • 45%
    The tariff rate Trump threatened during his 2016 presidential campaign to impose across the board on Chinese imports.
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