The United States and China have agreed to a temporary reduction in tariffs, providing vital support to American retailers preparing for the busy holiday shopping season.
This 90-day pause in the trade war allows Chinese manufacturers to timely ship goods to the American market, avoiding costly delays and shelves shortages during the peak sales period of the year, Reuters reports.
Almost a fifth of retail sales in the US in 2023 occurred during the winter holiday season, according to CNBC calculations based on data from the National Retail Federation. Sales increased by 4% compared to the previous year, reaching a record $994.1 billion.
"With the production speed in Chinese factories, this 90-day window can solve most of the issues related to product shortages for the Christmas season in the US," said Ryan Zhao, director at Jiangsu Green Willow Textile, an export-oriented company.
The production intended for American customers was halted last month, but Zhao anticipates the resumption of orders - although not at the same level as before the imposition of the new tariffs.
Uncertainty has cast doubt on Christmas deliveries
American retailers order merchandise months in advance, giving Chinese factories time to produce and ship goods before the peak season. The sudden increase in tariffs in April forced many to halt production, and uncertainty has cast doubt on Christmas deliveries.
"This 90-day pause avoids a potential disaster for retailers," said Cameron Johnson, senior partner at Tidalwave Solutions consultancy firm in Shanghai.
However, the negative impact will continue to be felt on Father's Day sales and during the "back to school" period, Johnson warns, due to additional costs related to tariffs and logistics. Shelf prices will continue to rise.
The US tariffs on Chinese products have not been completely eliminated. The Trump administration imposed an additional 20% tariff in two stages, citing China's involvement in the US fentanyl crisis. The ensuing trade war raised tariffs to over 100% for certain export categories.
Although many of these tariffs have been suspended for 90 days, the previous ones remain in effect. According to UBS, the average weighted US tariff on Chinese goods is now around 43.5%.
"We are relieved"
For sports shoes manufactured in China, the total tariff is 47%, compared to 17% in January, said Tony Post, CEO of the American company Topo Athletic. Even though the company received some cost reductions from Chinese suppliers, it had to slightly increase prices.
"It's good news, but we still hope for a permanent acceptable agreement between the two countries. We remain committed to Chinese suppliers and are relieved that, at least for the moment, we can continue our collaboration," Post stated.
American retailer Walmart has not confirmed how it will be affected by the tariff reduction, but stated that it "is encouraged by the progress made" and will provide more details in this week's financial results announcement.
Official data shows that China's exports to the US dropped by over 20% in April compared to the same month last year. However, China's total exports globally increased by 8.1%. According to Goldman Sachs estimates, around 16 million jobs in China depend on the production of goods for the American market.