US Retailers Are Facing Post-Tariff Spending Disorder

The US-China deal to slash tariffs will ease tensions but the disruptive effects will linger, along with a loss of consumer confidence.

- Andrea Felsted

The trade agreement between the US and China marks a dramatic volte-face after weeks of simmering tensions. But don't expect an equally breathtaking about-turn from US consumers. Amid the uncertainty about economic growth, job cuts and inflation, it will take time for shoppers to regain their confidence. Even if they do, there are some reasons why the pain for retailers and consumer goods groups may be prolonged.

The announcement on May 12 means the combined 145 per cent US tariffs on most Chinese imports will decline to 30 per cent by May 14. The new, lower rate is still unhelpful, but it's a lot better than the threatened tariff, which would have made some products, including toys and Christmas decorations, simply uneconomic to sell.

Retailers, suppliers and consumers will still have to share some pain. For Americans, that means some level of price inflation on the mostly non-food items that come from China. Take clothing, for example. At 145 per cent, retail prices for the mid-market knitwear and coats that are typically manufactured in China may have had to increase by 20 per cent to 30 per cent. Price hikes should now be less.