What will Trump’s TPP rejection mean for retail?
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What will Trump’s TPP rejection mean for retail?

Those who voted for Donald Trump in the recent election hoping he would prove to be more of a free trade proponent than he indicated at campaign rallies have to be disappointed with his announcement that scrapping the Trans-Pacific Partnership (TPP) was one of the actions he planned to take in his first day in office.

In a video to announce his plans, Mr. Trump called the TPP “a potential disaster for our country.” In its place, he said, “We will negotiate fair bilateral trade deals that bring jobs and industry back onto American shores.”

Mr. Trump’s rejection of the TPP flies in the face of support for the deal from the retail industry.

“Retailers strongly support the elimination of trade barriers and tariffs that will come with passage of TPP,” said Hun Quach, RILA vice president for international trade, in a statement earlier this year. “Retailers embrace the opportunity to compete in new markets and provide better value to our customers.”

According to the Chicago Tribune, retailers sent a letter to each member of Congress urging them to support the trade pact, which to their thinking represented “once-in-a-generation opportunity to reduce costs and open new markets for U.S. brands and retailers.”

Merchants have argued that a reduction in tariffs would show up in increased savings for American consumers. Tariffs on apparel can go as high as 32 percent with footwear as high as 67.5 percent, according to the National Retail Federation (NRF).

The U.S. imports about 98 percent of its footwear. Experts think it’s unlikely that manufacturing jobs for the industry will be repatriated, TPP or not. Manufacturing shoes tends to be labor intensive and foreign workers are paid substantially less than their American counterparts.

BrainTrust

"Investment in manufacturing goes where it makes the most sense and in good business there is always a plan B."

Lyle Bunn (Ph.D. Hon)

Strategy Architect – Digital Place-based Media


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Adrian Weidmann

Managing Director, StoreStream Metrics, LLC


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Adrian Weidmann

Managing Director, StoreStream Metrics, LLC


Discussion Questions

DISCUSSION QUESTIONS: What do you think rejection of the Trans-Pacific Partnership will mean for retailers and their customers? What’s the likelihood that the incoming administration will negotiate a much better alternative deal?

Poll

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Lyle Bunn (Ph.D. Hon)
Lyle Bunn (Ph.D. Hon)
7 years ago

Investment in manufacturing goes where it makes the most sense and in good business there is always a plan B. The complexity of assuring the best overall benefit through trade agreements and tariffs is compounded by the definition of “overall,” into which consumers will likely have little say.

Peter Charness
Trusted Member
7 years ago

It’s a whole new world so in reality I don’t think anyone really knows the outcome. My guess is that trade restrictions of any nature will of course make imports more expensive and send some manufacturing back to the U.S. which will create a very modest amount of new employment and a major amount of news headlines declaring victory. The higher prices that consumers will pay for this more expensive product will not be offset by the economic gains of new employment and there will be a net loss overall, and a greater hardship for the lower income levels who will find their wages don’t go as far as they used to. But I repeat my opening line — who knows?

Mark Ryski
Noble Member
7 years ago

Since the TPP was not implemented, rejecting it shouldn’t have any impact on retailers or customers. However, any potential benefits from it will obviously not be realized. The incoming administration made many pronouncements during the election, but now seems to be moderating on many of these — the TPP may be just one more of these.

No one can argue with the intent of trying to make better trade deals, but rejecting the TPP without some acknowledgment of the potential benefits seems premature and ham-handed. Since better trade deals was one of the key selling features of the new administrations, it will be interesting to see how they actually handle TPP and NAFTA.

Doug Garnett
Active Member
7 years ago

Trade agreements make excellent politics. But as movers in the market their impact is generally smaller than their ability to either encourage or discourage citizens.

Cancelling this before it starts is really a question of opportunity loss. Is TPP of a quality that implementing it would make a significant improvement in jobs, retail and the economy? If it is then canceling it loses an opportunity to move forward.

That’s what concerns me the most with the anti-TPP stance and more. We are in a global economy. As a country we must adjust to it and take care of those individuals and companies harmed by it while helping our economy improve from it.

But overall? Economic pressures will always cause far more change than any implementation or retraction of specific trade policies.

Gene Detroyer
Noble Member
7 years ago

Retail thrives when the economy thrives. Retail suffers when the economy suffers. TPP is full of new jobs for America. The countries represented in the agreement represent more potential customers of the economy than there are customers in the U.S. by itself. The withdrawal just hands the business to China who is waiting with open arms to take the U.S.’s place in the agreement.

Prices will go up, as will the cost of living. But more importantly than that, we are closing significant opportunities of economic growth by cutting ourselves off from the rest of the world while they move ahead. As hard as it is to swallow, they don’t need the United States.

Jeff Sward
Noble Member
7 years ago

Mark Ryski’s characterization of “premature and ham-handed” is perfect. To outright reject the work of so many people over so much time is incredible. We’ll just do bi-lateral deals instead? I haven’t read anywhere what those will accomplish that TPP wouldn’t, or what they would avoid that was problematic. It’s reminiscent of “repeal and replace.” Never as simple as the bumper sticker headline. Watch what happens if just one new tariff is put into place. The economic walls start to go up, brick by brick.

Ryan Mathews
Trusted Member
7 years ago

In the short term none, since this would be measuring a non-change. But, what happens over time remains to be seen. America can’t have a vibrant economy without global trade, and — election promises aside — no country is going to sign on to punitive trade deals. The notion that manufacturing jobs will come back is a tragic illusion. If they did, they’d be done by robots, not people. So, the immediate impact will be on manufacturers who will lose access to lucrative markets which, over time, should set in motion a general downturn in the economy which will obviously not be good for retailers.

But given the President-Elect’s shall we say rather unusual grasp of policy, consistency and the limits of the Executive Office, it’s almost impossible to say what the next Administration will actually do. Hillary isn’t going to jail. The Wall probably won’t be built, and in any event, Mexico is clearly not paying for it. And, my guess is the Affordable Care Act may be modified — which would have happened in any administration — but it isn’t going anywhere either. So, as to trade, we’ll just have to wait and see.

Brian Kelly
Brian Kelly
7 years ago

It ain’t over ’til it’s over…

Trump is modifying plenty of his stump claims. Once he gets a look under the hood on how global trade works, or doesn’t, then he will better understand how trade fits into the future of the US.

Like bringing back coal, the world has moved and unfortunately 25% of the electorate haven’t felt the benefit. Gasoline under $2/gallon provides insight into the change of energy management. The majority of his supporters live where stores and malls are shuttering. Those folks, facing stagnant wages and job loss, need the price points delivered by Global Trading partners, e.g. China, Vietnam, and Mexico.

The shift of the economic engines to urban centers and away from rural “factories, mills, forests and mines” is driven by corporate profit which is enabled by a new global supply chain. We have “come apart” and now folks have to sort out how to bring the US back together. Some straight talk as to the reality of how business is done would be helpful.

How Trump can lend his “expertise” as a deal maker remains to be seen. I hope he can stay out of court, hire trade-smart folks and focus upon this enormous problem.

As Ivanka says when another retailer drops her line, “retail ain’t for sissies.”

Happy Thanksgiving to all you retailers!

Craig Sundstrom
Craig Sundstrom
Noble Member
7 years ago

It’s impossible to separate TPP effects from all the other things that will — or won’t — happen to the economy. If high tariffs are imposed, what part will be absorbed by manufacturers or by retailers? What part will be passed on in higher prices, and what will be offset by shifting manufacturing to avoid them? With nothing more than a wild guess to answer those questions, how can one hope to move on to the broader issue of how the economy as a whole will respond to such shifts?

As for “a better deal”: better for whom?

Dan Frechtling
7 years ago

Unfortunately, retail buyers have to contend with more than just the impact (or lack thereof) of the TPP.

Nullifying the TPP maintains tariffs and makes foreign goods more expensive. Yet raising interest rates, as the Fed has indicated it will do, makes foreign goods cheaper.

Bringing manufacturing jobs back to the U.S. would require an equalization of regulations. Yet for U.S. factories to compete, environmental standards would likely be lowered. (the TPP would have equalized this by raising overseas regulations.)

Apparel and shoes, two oft-cited categories, are discretionary. So unit volumes (and factory utilization) decline when prices go up.

You can’t just pull one lever like tariffs and expect all else to be equal. Governing is different from campaigning.