When President-elect Joe Biden takes over the White House in January, he will face a global economy that has fundamentally shifted over the last four years in part because of President Donald Trump's grueling trade war with China. But while Biden's rhetoric about Beijing appears cool, retailers who have been hammered by import tariffs aren't expecting a sea change in policy.
"I think President Biden is going to be tough on China — but maybe a different kind of tough," said Stephen Lamar, CEO of the American Apparel & Footwear Association, an industry trade group. "We think the administration is going to be more predictable and less chaotic than what we've seen over the last four years."
Trump made being tough on China a cornerstone of his foreign policy, accusing the country of intellectual property theft and currency manipulation to gain an unfair competitive advantage in international trade, while issuing tit-for-tat trade rhetoric over Twitter. As the administration rolled out four tariff tranches on aluminum, steel and household goods to pursue "America first" production policies, retailers scrambled to reconfigure their supply chains and export manufacturing to countries outside China.
The toymaker Hasbro said last year that the amount of goods it produced in China could drop to about 50 percent by the end of this year as a result of tariffs. Williams-Sonoma and PVH Corp., which owns brands such as Van Heusen, Tommy Hilfiger and Calvin Klein, both said they would dramatically reduce their share of China-sourced goods by 2020. Abercrombie & Fitch said it planned to reduce its Chinese imports by 40 percent by the end of 2019. The companies moved a majority of their manufacturing to countries such as Vietnam, India and Mexico, with a smaller share moving to the U.S. to mitigate tariff costs.
"This year [sourcing] will be around 50 percent out of China," Hasbro CEO Brian Goldner told investors in June. About 20 percent of revenue in the U.S. comes from U.S.-made products, while the remaining products are made in India, Vietnam, Ireland and other markets around the world, he said.
Hasbro is "continuing to look at just what's the right size for the China footprint as we continue to look at global demand and global sourcing," he said.
But whereas Trump's "go it alone" strategy to decrease the country's dependence on China resulted in chaos, Biden's "Made in America" plan leans on multilateral alliances to bring critical supply chains back to the U.S. He promises to invest $400 billion in procurement measures to boost domestic manufacturing and to pour $300 billion into research and development.
Biden won't rule out new tariffs, but he would likely "use tariffs when they're needed but backed by a strategy and a plan," Tony Blinken, a former Obama adviser — who is being touted as a possible secretary of state in the new administration — said in September.
After years of uncertainty, and still under the grip of an economy thrashed by a global pandemic, retailers welcomed the stability that might come with a Biden administration's cooling trade tensions internationally. And after two years of overhauling their supply chains, it is that unlikely retailers would welcome another dramatic move.
"Businesses need market stability, global trade relations that don't change on a whim, talent from everywhere, long-range planning, and a lack of constant distractions."
"Everyone in retail, and frankly most of the U.S. economy, including farmers and exporters and manufacturing, will benefit from a de-escalation of trade tensions around the world," said David French, senior vice president of government relations for the National Retail Federation, a retail industry trade group.
Box CEO Aaron Levie tweeted Saturday after Biden emerged as the victor in the presidential race: "This is great for American competitiveness. While there's nothing magical Biden can do, that's the point. Businesses need market stability, global trade relations that don't change on a whim, talent from everywhere, long-range planning, and a lack of constant distractions."
China's economy, one of the fastest-growing in the world, has become too large for the U.S. to ignore. And a move away from free trade, a stance that is shared across the political aisle, presents a challenge for companies whose only source for products is China.
"Moving away from China would be bad for brides in the U.S., and it would be bad for us," said Calley Means, a co-founder of the online dress company Anomalie. His business margins have taken a hit because of tariffs, Means said, because he couldn't change sourcing overnight, given that about 80 percent of the world's Western-style gowns are produced in China.
"What we represent on a micro scale is massive uncertainty and catastrophic ramifications for us and our team in China," Means said. "I'm not feeling more optimistic on the China front, because no one is having that conversation. We have a disquieting bipartisan consensus that seems to be soft anti-trade sentiment on both sides."
Some retailers who couldn't move production outside China swallowed the cost of tariffs before sending it along to consumers, said Erin George, a managing director with Boston Consulting Group. With some products, companies adjusted the thickness of tabletops or removed decorative elements to keep consumer prices low, George said. In other cases, they stopped selling certain products altogether if the cost of manufacturing outweighed profits.
"Retailers are always thinking about ways to profitability and tariffs," she said. "Retailers pulled a lot of the levers that they had to pull in their toolkit."
China makes up more than a quarter of the world's manufacturing output, according to the U.N. Industrial Development Organization. For the U.S., total withdrawal from China would be a tall order.
China dominates in electronics and certain subcomponents of electronics that can't easily be manufactured by other countries that don't have the infrastructure to produce them, said Michael McAdoo, a partner with Boston Consulting Group. China is also strong in fleece production, but Vietnam, Turkey and India dominate in other textiles, such as cotton or polyester.
"There may be selective relief in certain categories," McAdoo said. "But I wouldn't suggest day one there will be a magic wand and all this goes away."