Trump startles US businesses with fresh tariff hike

Importers received just five days' notice

By Katie Lobosco, CNN
Copyright 2019 CNN

(CNN) - President Donald Trump's decision to escalate tariffs on $200 billion of Chinese goods on Friday is angering American businesses that say they were taken by surprise.

Importers received just five days' notice about the sudden rise in the tariff rate to 25% from 10%.

Phil Page, the CEO of Missouri-based Cap America, estimates that his company has more than $1 million worth of baseball hats already ordered that will now be hit with the higher tariff.

"It's very difficult to understand what the president is going to do by a business perspective. To spring it on us all at once like this is a very poor judgment on his part," Page said.

"I thought this thing was going to be worked out this week," he added.

The president himself told reporters on Friday that "the deal itself is going along pretty well" and a delegation of Chinese negotiators are scheduled to arrive in Washington this week.

But Trump reversed course on Sunday, threatening to raise the tariff rate. On Monday, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin confirmed the administration would be moving forward with the tariff escalation on Friday, saying that China reneged on previous agreements over the weekend.

Trump imposed three rounds of tariffs last year. The third and biggest tranche on $200 billion of Chinese goods went into effect in September. But the president threatened to escalate the tariff rate to 25% from 10% on Jan. 1 if progress wasn't made on a new trade deal -- and then pushed the deadline to March 1.

When the second date came and went, it appeared trade tensions were easing up and businesses adjusted to the new normal.

"I thought we were finally figuring out how to make this work, and now we have to start all over," said Tiffany Zarfas Williams, owner of the Luggage Shop of Lubbock in Texas.

About 84% of the luggage, backpacks and briefcases she sells were hit with tariffs. Earlier in the year, she would receive emails from vendors on a daily basis about price increases. Zarfas Williams raised her own prices accordingly and adjusted the assortment of items on the floor.

But by Monday afternoon, she had already received a new email from one of her biggest vendors reminding her that a higher tariff would result in a higher price.

Sales of the higher-end items at Luggage Shop of Lubbock have already taken a hit and adding another 15% to the price would be "a whole new ballgame," she said.

Trump's top trade negotiators on Monday brushed off criticism that US businesses and executives were not given sufficient notice ahead of plans to escalate tariffs on $200 billion of Chinese goods.

"The fact is that we've been in a position where that very well could happen," Lighthizer told reporters at a briefing. He also opened the door to possible exemptions but did not offer any further details.

The message was echoed by Mnuchin.

"It's obviously been a big time commitment, so I would just emphasize that nothing that's been done has been on short notice," he said. "Although certain expectations may have changed over the last week from the other side."

Trump has repeatedly claimed that China pays the tariffs. While some Chinese companies may choose to eat some of the cost in order to remain competitive in the US market, several recent research papers show that American consumers and producers take on most of the burden.

The business community generally agrees that the United States should take a tougher stance on trade with China to address what it sees as unfair trade practices, like intellectual property theft and forced technology transfers. But they don't all agree that tariffs are the best way to bring Beijing to the negotiating table.

"I definitely want China to be held accountable, but I don't know why we are punishing consumers in our own country. That's the part that's hard to understand as a small business owner in Texas," Zarfas Williams said.

About 75% of good-producing firms recently surveyed by the National Association for Business Economics said the tariffs have had a negative impact on their business.

Trump administration officials said Monday that the administration would also move forward with a process to impose new tariffs on additional Chinese goods. Trump had floated the idea over the weekend to slap duties on another $325 billion of imports, which would result in a tax on most -- if not all -- Chinese goods coming into the United States.

The administration strategically put the earlier tariffs on imports mostly used in the production of other items, like semiconductors or refrigerators. That means the next round could tax more items that are directly sold to consumers

New tariffs would hit the core of clothing and footwear imports, said Rick Helfenbein, president and CEO of the American Apparel & Footwear Association.

"That's why we're freaked," he said.

A significant portion of hats, luggage, clothing and shoes sold in the United States come from China, leaving importers with little choice to source items from elsewhere in the short-term. Other countries don't have the capacity to take on more production immediately.

"This confirms our worst fears. There are those of us who are optimists and thought it would go away and those who say it could come back at any time -- and this points to the latter," Helfenbein said.

CNN's Donna Borak contributed reporting to this story.

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