US-China Trade War

US-China Trade War – How Recent Developments Will Affect Our Pricing Leave a comment

US-China Trade War – US and China have been at loggerheads on the trade-front since January 2018. This international trade feud started when President Trump delivered his remarks about China’s trade policy and framework at the 73rd Session of the United Nations General Assembly. He started by talking about the loss of over 3 million manufacturing jobs, 25% of all steel jobs, and about half a million factories after China entered WTO. Adding to this, he emphasized on how US has racked up $13 trillion in trade deficits over the last two decades. In a bid to control this the trade imbalance, the President further announced tariffs on $200 billion of Chinese goods, making that a total of $250 billion.

Everything spiralled down from that point and has been in a whirlwind ever since. While recently, it was expected that the disagreements would come to an end but with last week’s playdown, both countries have staked out leaving the industry and the global economy lingering amidst this decade’s biggest trade war.

In wake of the situation, it is evident that the promo prices are set to touch an all-time high. As many of promotional products used in the US are made in China, the implications cannot be measured for the next few weeks. There is strong possibility that Trump may decide to implement a 25% tariff on an additional $300 billion of Chinese imports. If this sees the light of the day, there can be a hyperbolic inflation in the promo prices.

For now, we’ve decided to react to this entire situation as follows.

Our current prices will not be changes until July 1st 2019. In case, planned tariff of 25% goes effective from June 1st, the Q3 price change will be put into from July 1st. Our approach and philosophy will remain in sync with our pricing strategy for the 10% tariffs to start the year. We will continue to manage price increases commensurate with the timing and phasing of the 25% tariff impact – with the goal of minimizing the impact on you and your clients. Should the 25% tariffs remain in place for an extended period (and/or should the range of tariff categories be expanded), we would look to make a further adjustment in our prices to start the Q4 period on October 1st 2019.

With that announced, we understand that there’s an uncertainty and anxiety in the promo industry alongwith many others that heavily rely on China-sourced products. At this point of time, it is important to understand that if the US government decides to levy high tariff on $300 billion of additional Chinese imports, the economy could hit stagnation by the last quarter of the year, which would further dampen the promo industry sales.

Many Top 40 supplier executives have spoken out about the repercussions this latest advancement in the US-Sino trade war is already having on the industry.

Some notable facts about this entire episode are as follows:

  • Tariffs on the existing $200 billion of Chinese imports will increase from 10% to 25% effective June 1st 2019.
  • The 25% tariff impacts the given product categories: Bag, Stationery products, Drinkware, Technology products, and accessories.
  • An additional $300+ billion of imports from China may come under US’s radar next month.

To keep the tariffs from affecting our distributors, we have successfully increased the amount of production from other countries. We’re working at a grassroot level to re-negotiate our buying costs with our vendors and reduce the internal servicing and decoration costs.

Overall, with this US-China trade war being dragged on by both countries, all industries are equally suffering. That’s one reason why we must look for alternative sourcing countries for our products. With very little chances of the difference between the countries being resolved, being equipped with a backup plan to sustain our respective businesses is the best prospect at preventing a free fall of the industry.

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