Expert Opinion: Trade ‘Deal’ Bluster Vs. Retail Realty

The contentious trade war between the United States and China has been filled with mountains of rhetoric and promises. It should come as no surprise then that trade deal announced on Dec. 13 would be any different. Little details were revealed and big promises given, but the pledge by President Donald Trump not to raise more tariffs was considered a step in the right direction. 

Unfortunately, the two largest economies in the world still have tariffs levied against one another. The 25% tariffs on roughly $250 billion of Chinese imports along with the 7.5% on approximately $120 billion in Chinese imports are still imposed and if China reneges on their end of the deal, the threat of future tariffs is still on the table. 

On "Face the Nation," USTR Ambassador Lighthizer minced no words on China’s accountability in following through on their promises, "Ultimately, whether this whole agreement works is going to be determined by who's making the decisions in China, not in the United States," Lighthizer said. "If the hardliners are making the decisions, we're going to get one outcome. If the reformers are making the decisions, which is what we hope, then we're going to get another outcome." 

The syntax of further “future rollbacks in tariff” is of great importance to all in commerce. In an industry that works months in advance on new product offerings and negotiating prices for products with retailers before it hits the shelves you want a solid pricing environment. Tariffs cloud planning. 

Many U.S. companies like Casabella, a part of Bradshaw Home, innovate their product design in the United States but manufacture the majority of their products in China. Because Casabella sells household and cleaning products, it always has products being transported by sea. 

Before the trade war, it would normally take 90 to 120 days from the time Casabella ordered its products for the containers to arrive in the U.S. (60 to 90 days of production, then 30 days on the water). “We have goods on the water right now that were ordered four to five months ago,” said Bruce Kaminstein, founder of Casabella. “We have products coming in where the prices with retailers were pre-negotiated. Now they are going to be 15 percent more expensive. We must go back to retailers now and renegotiate a price increase to help offset the 15% tariff. The trade war has put us in the middle of a squeeze play with the retailers.” 

Kaminstein explained the tug of war between the retailers and companies like Casabella. “The retailers want to hold their pricing because they know if they raise prices, they will sell less product. So, if the retailers don’t agree to raise prices, the added costs must be offset somewhere—that means our bottom line, which impacts company expansion and jobs. That is not good for America.” 

Kaminstein said he began fierce discussions to see if Casabella’s Chinese manufacturers could drop the price of manufacturing their products. “Unfortunately, I know they will not drop the price by 10% to 15%.” 

While the company’s buckets and large plastic products are made in the U.S., their houseware products that require certain materials, such as bristles, or manual labor, are made in China. Moving those operations to the United States is not possible. “It is essentially impossible to make these products in America,” Kaminstein declared. “There is no place to bristle a broom! There used to be original equipment manufacturers (OEMs) in the U.S., but they are all gone now. We use the world to produce our innovations now.” 

On Earth Day, April 22, 2020, Casabella will officially roll out a new product line, but because of the September tariffs, the sales team must revert and create a new sales plan to offset the tariff. The cost of the new product line and how much the company negotiated with retailers to sell the products for were set in July 2019. Now the product will be at least 15% more. Kaminstein said they must go back and renegotiate the sales price to offset the tariff. “It’s very upsetting,” he said. 

The bluster of a resolution may be the headline, but the reality is the expense on the flow of trade. 

Lori Ann LaRocco, author of “Trade War: Containers Don’t Lie, Navigating the Bluster,” is senior editor of guests for CNBC business news. She coordinates high-profile interviews and special multimillion-dollar on-location productions for all shows on the network.