NRF Study Finds Chinese Production Unlikely to Move If PNTR Revoked, Tariffs Increase
Higher tariffs on some Chinese goods if Congress strips China of its permanent normal trade relations status would not be offset by moving production to other countries, and would instead increase prices for U.S. consumers, hurting low-income households most, according to a study released last week by the National Retail Federation.
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Options to shift sourcing in the event that tariff schedule column 2 tariffs are applied to China “quickly may be limited by past efforts to identify suppliers outside of China in response to Section 301 tariffs, increasing the risk of supply chain disruptions and shortages,” the NRF said.
The report examined the effect of removing PNTR on China and applying column 2 tariffs on toys, household appliances, furniture, footwear and apparel. If that happens, tariffs on most toys would increase from 0.1% to 66.6%; tariffs on most household appliances would go up from about 2.1% to 38%; and tariffs on most furniture would rise from about 0.2% to 42.7%, the report said. Tariffs on most footwear and apparel would rise from 10.4% to 32.3%, and from 16.1% to 75.7%, respectively.
The positive effect on U.S. manufacturers would be minimal, and more than offset by the cost to U.S. consumers, the report said. U.S. toy output would grow 16%, worth $3.7 billion, but U.S. consumers would pay $12.3 billion in higher prices. Likewise, while furniture output in the U.S. and Mexico would increase by 2% each, U.S. furniture prices would rise by 4%, and consumers would reduce purchases by almost 8%, the report said.
Cost to consumers would be similarly higher than U.S. production increases for appliances, textiles and apparel, the report said. And the price increases would especially hit low-income consumers hardest for most of the products in the report, because low-income households spend proportionally more of their incomes on each.
“For all of the products reviewed in this research, very little of the production currently sourced from China can be moved to other countries,” including the U.S., the report said. “Sourcing of products subject to Section 301 tariffs (apparel, footwear, furniture) has already moved to the extent possible,” the report said. “For other products not yet subject to those tariffs (household appliances, toys), China accounts for most if not nearly all of the supply from international manufacturers partly because efforts to move production are more challenging.”
“Even though significant efforts have been made in recent years to diversify sourcing, China continues to play an important role in the supply chain of many retailers and other global industries, from sourcing raw materials to manufacturing and production,” NRF Vice President of Supply Chain and Customs Policy Jonathan Gold said in a news release announcing the report. “It would be impossible for American families to escape the higher costs from dramatic tariff increases on necessities such as apparel, footwear, furniture, appliances and toys.”
“Congress and the administration should proceed deliberately on discussions related to further tariff increases on imports from China, such as revoking PNTR for China and moving to ‘Column 2’ rates, which would impose regressive taxes on American families for consumer staples and harm the U.S. economy,” the report said. “There is simply no way for American families to escape the inevitable pain from tariff increases of up to 75% on necessities like apparel, footwear, furniture, appliances and toys.”