By Joshua Fechter, San Antonio Express-News
San Antonio Express-News
WWR Article Summary (tl;dr) Major retailers, many of which manufacture goods overseas because of low labor and production costs, have come out against the border adjustment tax. More than 200 retailers and trade groups — including Walmart, Best Buy, JCPenney, Macy’s and Target — have signed on with Americans for Affordable Products, a coalition that opposes the measure.
San Antonio Express-News
U.S. retailers, battered by the rise of online shopping and off-price brands, are facing down a new and unlikely source of pressure: Republicans.
A series of protectionist proposals, from President Donald Trump’s on-again, off-again support for a tariff on imported goods to House Republicans’ push for the so-called border adjustment tax, have left apparel chains and big-box stores wary that their already rocky sector won’t receive the same push from the administration to rebuild their industry that has been promised to energy and manufacturing interests.
Retailers and analysts say protectionist policies will lead to higher prices on consumer goods, falling sales and accelerated retailer bankruptcies — adding more stress to an ailing industry.
“I think you’d just see more bankruptcies, you’d see more retailers in trouble, you’d see more store closings” if lawmakers approved a border tax proposal, New York-based analyst Jan Kniffen said. “It would just exacerbate what’s already a lot of pressure.”
Major retailers, many of which manufacture goods overseas because of low labor and production costs, have come out against the border adjustment tax. More than 200 retailers and trade groups — including Walmart, Best Buy, JCPenney, Macy’s and Target — have signed on with Americans for Affordable Products, a coalition that opposes the measure.
“It would be a significant burden to the retail community across the board in Texas as well as in the U.S.,” said George Kelemen, CEO and president of the Texas Retailers Association. “Ultimately, it’s a cost that would be passed onto consumers. We don’t think this is what House Republicans want or the White House wants.”
Trump has already tussled once with retailers during his young administration. The president blasted Nordstrom on Twitter this month for “unfairly” dropping daughter Ivanka Trump’s line of clothing and fashion accessories.
The Seattle-based luxury fashion chain said the president’s daughter’s products were nixed because of poor sales performance, not politics. The spat had a “negligible” effect on sales at Nordstrom, company co-president Peter Nordstrom said during an earnings call Thursday.
Retailers, otherwise eager to work with the new administration on cutting taxes, argue that consumers will bear the largest brunt from Republicans’ trade proposals. An Ernst and Young study commissioned by the National Retail Federation found that the average family — a married couple with two children — would see 27 percent of their savings disappear to compensate for cost increases on goods and could see annual apparel costs increase by $437 and annual gas spending jump by at least $400.
“I don’t think a lot of those folks would like to be saddled with two, three, four hundred dollars a month in added costs just in their daily cost of living,” Kelemen said.
Republicans have migrated to the border adjustment tax proposal because representatives can sell the policy as a tax on foreign countries, not on U.S. citizens, even though they may wind up with larger bills because of the tax, said Cal Jillson, a political scientist at Southern Methodist University.
“The fact that it allows politicians to dodge the idea that they have adopted a tax increase is of great benefit to them,” Jillson said.
Just this week, Trump gave his most enthusiastic support to date for the border adjustment tax proposal, although he stopped short of specifically endorsing the House proposal. He told Reuters on Thursday that the tax “could lead to a lot more jobs in the United States.”
“I certainly support a form of tax on the border,” Trump told Reuters. “What is going to happen is companies are going to come back here, they’re going to build their factories and they’re going to create a lot of jobs and there’s no tax.”
Earlier Thursday, Treasury Secretary Steven Mnuchin gave a more lukewarm assessment of the proposal in an interview with the business network CNBC.
A proposed corporate tax code overhaul would replace the current 35 percent corporate income tax with a 20 percent rate on imported goods sold domestically, rewarding companies that produce their goods in the U.S. and punishing those that rely on international suppliers. Supporters say the tax would ultimately strength the U.S. dollar.
“We think there are some very interesting aspects of it,” Mnuchin said, but added, “We think there are some concerns about it.”
But any proposal that takes aim at imports could mean one more hit for retailers, which depend on cheap goods including apparel, electronics and produce manufactured or grown overseas for sale stateside. The U.S. imported about $2.2 trillion in goods last year, according to the federal Bureau of Economic Analysis, down $49.9 billion from 2015. Comparatively, the U.S. exported almost $1.5 trillion in goods in 2016, almost $51 million less than the prior year.
The National Retail Federation projected that imports at major retail container ports in the U.S. would increase 4.6 percent during the first six months of 2017, citing an improving economy.
“We had a positive and productive conversation with President Trump about the important role the retail industry plays in our national economy,” the Retail Industry Leaders Association said in a statement last week after retail CEOs met with Trump. “We stressed the importance of taking a thoughtful approach to tax reform for both individuals and corporations.”
U.S. shoppers spent $3.7 trillion on retail goods including apparel, electronics and groceries in 2016, according to preliminary retail sales estimates from the Census Bureau, up from $3.6 trillion in 2015 and 2014.
But major retailers are already struggling with how to compete with online retail giant Amazon and off-price stores including Nordstrom Rack, T.J. Maxx and Ross — without having to navigate U.S. protectionist policies.
Several big-box chains have announced store closures within the past year. Plano-based JCPenney said Friday that it plans to close up to 140 stores even though it turned a net profit last year, the first time since 2010. Macy’s plans to shutter 34 locations, on top of 68 previously announced closures, the Cincinnati-based retailer said Tuesday. Sears, based in Chicago, aims to close more than 150 stores nationwide, while the women’s apparel chain The Limited closed all 250 of its stores last month.
Consumer confidence fell in February after soaring to record highs following Trump’s Nov. 8 election victory, according to a University of Michigan survey released this month. If prices on consumer goods go up because of action on trade, U.S. shoppers may take their dollars elsewhere.
“I think people would just shift their spending rather than pay more for sweaters,” said Kniffen, the New York analyst. “They would just buy fewer sweaters. They would still go out to dinner, they would still buy gas for their car and they would still go on vacations because that at the moment is more important to most consumers than having one more sweater in their closet.”
Kniffen added, “They may pay the higher price on what they buy, but they’re not going to spend more on shirts than they did last year. There are too many alternatives on what they can do, and nobody’s closet is empty.”
Retailers have been equally wary of changes to the North American Free Trade Agreement. Trump has repeatedly signaled his intent to “tweak” parts of NAFTA, implying during a recent meeting with Canadian Prime Minister Justin Trudeau that Mexico would benefit the least from those changes.
Speaking at a Border Caucus hearing in Weslaco on Wednesday, H-E-B director of global sourcing Jody Hall said the San Antonio-based supermarket chain’s customers are worried that they won’t have access to their products. The company operates 58 stores in Mexico and imports produce and other goods for sale in its Texas stores.
“H-E-B supports free trade,” Hall said. “NAFTA has created greater access to fruits and vegetables in groceries at lower prices.”
Trump’s overall push to make businesses produce more goods stateside would require billions of dollars in investment, capital that retailers may not have on hand.
“When you talk about some of the food and agricultural products like bananas, avocados, coffee, cocoa, you’re talking about basically having to create entire new industries, in some cases, here in the U.S.,” said Kelemen of the Texas Retailers Association. “I’m not going to say it would be impossible, but it would be a very difficult and very lengthy process.”
Staff Writer Aaron Nelsen and the Associated Press contributed to this report.