Turf fighting in China in the White House weighs on retail and drives up inflation

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Pundits who follow the Biden administration fear US trade policy has stalled. They wonder if the game plan is anti-China, anti-retail, anti-trade, or all three.

Serious issues such as: tariff exclusions, supply chain governance, Chinese trade policy, the General System of Preferences (GSP), de minimis or the Miscellaneous Tariff Law (MTB) suffer from varying degrees of immobility. The White House may be focused on inflation and Build Back Better, but businesspeople involved in retail, fashion and commerce can’t seem to break away from this administration.

The truth about Washington’s trade paralysis is slowly bubbling to the surface. Apparently (per Politico), the Biden administration is split into three trade camps. Either you are part of the Group of Commercial Expansionistsor the work friendly group, or the Political Lens Group. These three groups are by definition even more complicated than the Trump divisions – where you were either a nationalist or a globalist.

In a government that claims to be transparent, it’s interesting to hear about internal squabbling over trade policy. Last September (as recently reported by Hans Nichols in AXIOS), a turf war erupted between US Trade Representative Katherine Tai and National Security Advisor Jake Sullivan over press leaks that potentially undermined the USTR’s authority in the China tariffs process. The problem with this (revealed) situation is not the turf war itself, but the fact that the government has shown itself to be misaligned with the direction of trade – leaving importers and retailers in a deepening sea of ​​uncertainty. For those who have day-to-day trade problems (that cause real inflation problems), finding out who is overseeing the trade process and what the next steps will be in relation to China is crucial. Senior retail executives are working feverishly to stabilize a 2022 trade agenda badly shaken by COVID. They would like to see the Biden administration pull Per the retail trade – instead slow walking Uncertainty. This uncertainty is financially visible in the recently falling XRT retail stock index. It is down significantly from its peak, peaking at $104.16 on 11/16/21.

Retailers watched the government’s every move, looking for signs at President Biden‘s recent press conference that could help resolve serious trade-related issues. When the topic finally turned to trading, the question from Wall Street Journal’s Ken Thomas said it all.

Ask: “Sir, you mentioned China. Do you think it’s time to lift some of the tariffs on Chinese imports? Or does China need to fulfill some of its Phase One commitments? Some business groups want you to start increasing these tariffs on China.”

The president: “Well, I know that, and that’s why my sales representative is working on it right now. The answer is uncertain. It’s uncertain.

I want to be in a position where I can say they are honoring their commitments, or more of their commitments, and be able to waive some of them. But we are not there yet.”

For any high street retailer (in places like Scranton, Pennsylvania) or for the fashion importer in California whose checking account is being hit with additional duties (taxes) by US Customs, “we’re not there yet” really isn’t an acceptable answer — especially after about one year in office. In retrospect, presidential candidates often announce what they intend to do on day one. Well, retailers will tell you it’s day 370 and they’re still waiting for something to happen.

Most importers just want the unnecessary tariffs to be removed, but if the problem is geopolitical (and one is reluctant to remove any of the tariffs), with inflation running rampant, in fairness to politics the government should at least start a serious process which would “exclude” some imported items from the current comprehensive customs list.

There are several members of Congress who want to help and have suggested moving forward with some “product bans”. The day after the President’s press conference, a bipartisan letter was issued by Reps Ron Kind (D-WI), Darin LaHood (R-IL), Suzan DelBene (D-WA), Jackie Walorski (R-IN) and 137 colleagues. The letter was sent to USTR Katherine Tai, asking for a “comprehensive, fair and transparent process of elimination Allow U.S. producers, manufacturers and importers to request exemptions from all Section 301 tariffs on imports from China on a case-by-case basis.”

In their letter, they wrote, “Unfortunately, Section 301 tariffs have had a wide-ranging impact on U.S. manufacturing, agriculture, fisheries, sale, energy, technology and service industries. This impact has been strongest for small and medium-sized businesses, which are less able to absorb the increased tariff costs. Section 301 tariffs have also hurt American families and consumers by raising prices on a wide range of consumer goods.”

Now former Trump officials have also gotten involved, regardless of turf wars in the White House. Sensing blood in the water, they began attacking other Republicans who showed interest in a process of elimination.

The Washington Examiner reported that former President Trump‘s trade adviser Peter Navarro said: “The trade deficit with communist China is shooting off the charts and stealing American jobs. This is a case for raising tariffs, not lowering them.” Navarro also warned Republicans who wanted to weaken tariffs. He said, “Trump’s woeful base comes for every Republican who aligns himself with the Chinese Communist Party.”

All this bickering shows that trade policy is completely politicized and perhaps the system is broken. There is deadlock in the White House and deadlock in Congress. Even the Republicans are attacking the Republicans. As all of this continues, retailers are left to run their own businesses and are now forced to make certain assumptions for the 2022 balance sheet.

Here is a possible 2022 trade guideline for retailers:

1. Don’t expect tariffs to be eliminated any time soon

2. Expect there might be some product exclusions at the tariffs, but not as many as retailers would like

3. Expect GSP and MTB to be renewed, perhaps as part of the China Competitiveness Bill

4. Expect goods from China to be stopped at the US border – this requires importers to carefully map their supply chains (Xinjiang)

5. Expect Section 321 de minimis (direct to consumer at $800 per person per day) rules to be subject to change

6. Expect the cost of cotton and raw materials to increase

7. Expect the supply chain to keep delaying and shipping cost to keep high

8. Expect sales prices to increase, but anticipate resistance from retail consumers.

While some of the above guidelines already apply to 2022, it’s interesting to recall the story of an aspiring Ivy League freshman who wanted to be a rower on the varsity crew team. On the very first day, the student showed up for training and was appointed helmsman, where he was to steer the boat, set the racing plan and motivate other rowers.

He left the team.

The young man liked the idea of ​​training hard and rowing together to win, but gave up, fearing success. According to tradition, when a race was won, the helmsman was thrown into the Schuylkill River (an unfathomable result).

President Biden‘s trade policy is not very different from the helmsman’s story. It reminds us that winning as a team requires working toward a common goal—even when the outcome of winning has an unpredictable outcome.

Dealers ask for help. Will the government be there for them?

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