Tariffs Could Upend Retailers' Holiday Inventories
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Your money briefing. Money and Market Stories from The Wall Street Journal.
I'm J.R. Whalen in New York. Retailers are considering moving up their holiday season buying activities, and that's not necessarily a good thing. We'll explain in a moment. First, these money headlines. In an effort to help current and future American workers secure jobs domestically, President Trump is signing an executive order to spur new investments in job training. More than 15 companies and associations will sign a pledge to educate and train American students and workers. including IBM, FedEx, General Motors, and Microsoft. As part of their commitment, those companies will commit to expanding apprenticeships, also increasing on-the-job training and providing Americans with opportunities to develop new skills and secure stable jobs.
The White House says it expects the program to lead to more than 500,000 new career opportunities for students and workers. Meanwhile, Fitch Ratings says in a report that the current tariff battles between the U.S., along with China and the European Union, are likely to dampen capital spending by U.S. companies in 2018 and lead to a decline in spending in 2019 that could mark a turning point in the late-stage business cycle. Fitch is expecting about 3% growth in aggregate capital spending in 2018. That's half the 6% growth recorded last year. The rating agency expects that rate to swing to a negative 0.8% in 2019 amid warnings of changing business strategies and delays in capital projects. This is your Money Briefing from The Wall Street Journal.
Welcome back, everybody. It's Christmas in July. That is, if you're a retailer grappling with potential tariffs on Chinese goods. Heard on the street columnist Elizabeth Winkler is here to explain how they could impact consumers. So, Elizabeth, the new round of tariffs, if they go through, would impact a pretty broad range of products.
That's right. Yeah, about $200 billion worth of Chinese imports, everything from luggage, handbags, baseball gloves, furniture, apparel, mattresses, electric lamps, components in phones and TVs. So that's a lot for retailers to worry about.
And, you know, this new round of tariffs, if they go through, would put retailers in a bind because they have to take action now to protect their inventories, especially in preparation for the holiday season.
That's right. The White House has said the tariffs won't take effect for about two months, but that hits right around the time when retailers are stocking up for the holidays. So their decision is basically they can order now, pre-order, and try to beat the tariffs, or they can wait and risk having to pay higher prices.
Many retailers have been trying to wind down their exposure to China anyway, so it could blunt the impact somewhat. I mean, they haven't really eliminated their exposure to China, but they've been trying to sort of back that down a bit.
That's right. I think they're trying to tamp down the anxiety around this by saying that they've been reducing their exposure to China anyway, and it's become in many cases increasingly expensive to manufacture in China. But yes, there is still huge exposure and upending those extremely complicated supply chains, especially at such short notice, is not easy.
And with regard to products coming out of China, the share of goods like toys and clothing imported by the U.S., that runs in excess of 60 percent. And toys and clothing usually wind up on a lot of Christmas lists and a lot of Hanukkah lists around December.
That is right. Absolutely. Toys are not actually on the list right now of goods that could be hit by tariffs. But sporting goods like baseball gloves are, clothing, furniture, that's all in the 40 to 60 percent range in terms of U.S. imports from China. So it's substantial.
And you point out in your column that retailers have been down this road before. If they were to accelerate buying up goods now to beat the tariffs, they could wind up with excess inventory like they did in 2015 and 2016.
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