Santa might be short of presents this Christmas due to tariffs

By Polly Chen

Although there's still six months until Christmas, importers and suppliers are already preparing for the seasonal uptick in demand for their products.

Jared Haw, the president of EPower Corp, a U.S. contract manufacturer with facilities in Dongguan, China, said:

For orders that have to be out by Christmas you have to plan for one month of shipping. Then retailers hold the stock for 30 days before they put it on the shelf. Production is up to 45 days. So that is more than three months.

Sometimes it takes even more time to design and manufacture a prototype first, extending production lead time to five or even six months.

Now should be the perfect time to place orders. But buyers and designers are hesitating due growing uncertainty surrounding the ongoing trade war.

With harsher tariff policies, there will be fewer orders and higher prices this Christmas season. This year, Santa Claus' supply chain might feel the squeeze.

Importers hesitate to place orders ahead of the holidays

President Trump recently announced a tariff increase on $200 billion of Chinese goods from 10 percent to 25 percent.

The tariffs will hit consumer goods and common Christmas gifts like smartphones, toys, watches and musical instruments. Consumers will need to spend more than they would have in previous years.

Take bikes for example. A bicycle might originally cost $40 from a Chinese factory. The bike then retails at $80 overseas. But with a 25 percent tariff, the retailer must raise the selling price above $100 to maintain the same margin.

That's why buyers and suppliers are worried about Christmas orders. Steve Pasierb, president of a U.S.-based trade body, the Toy Association, said:

To be clear, China is not paying a penny of tariffs; rather, US companies and families are, through decreased profits and higher consumer prices.

Some importers are going to “wait-and-see” and place orders after tariff policies are clearer. But there's a risk that late orders could miss the peak Christmas season.

Other importers are shipping earlier to avoid the incoming higher tariffs. Tim Scott-Stuart, the owner of Unit Bricks, decided to ship his Christmas orders earlier than normal this year. He said there's also backlogs at U.S. ports right now:

Right now it looks like just the sheer volume is creating the back up, and this would be due to front loading to avoid potential tariffs.

Some importers are also trying to save their business by lobbying the government to remove their products from the tariff list. Shoe giants like Nike, Adidas and Foot Locker recently wrote President Trump a letter requesting footwear to be removed from the list, saying the tariffs would be “catastrophic”.

“The margin is as thin as a piece of paper”

Chinese manufacturers are feeling the burden of tariffs too. China is quickly losing its position as the “go-to” manufacturing country in U.S. supply chains.

Many Chinese manufacturers rely on overseas buyers for orders. But with a 25 percent tariff, these manufacturers will lose business when importers don't place as many orders as before.

Tariffs are especially hard-hitting for manufacturers of products with already thin margins. Ge Lei, the general manager of Shanghai General Sports, said:

Nobody on the supply chain can absorb additional tariffs. I don’t know about other industries. For bicycles, we cannot share [tariffs with importers]. The margin is as thin as a piece of paper.

Even if manufacturers manage to get orders now, importers might later cancel orders if tariffs increase further.

Aside from tariffs, labor and land rental costs in China are also climbing. As a precaution, many Chinese manufacturers are planning to shift their production to “cheaper” manufacturing countries. Ge also bought land in Cambodia last year as a “contingency plan”:

If you asked me four weeks ago, I was sure that they would not go to 25 per cent. So who knows? Really, moving to Cambodia is a big investment for us.

Follow the link below to learn more about how tariffs are affecting Christmas orders.

US-China trade war tariffs wreak havoc on Christmas orders with Chinese manufacturers thrown into disarray – Sidney Leng, Orange Wang and Finbarr Bermingham, South China Morning Post

The views, opinions and images in this article are purely the author's own. Global Sources does not own responsibility for what is presented in the article.

Polly Chen is a Client Manager at InTouch Manufacturing Services, a QC firm that performs product inspections and factory audits in Asia for clients in the US, EU and Australia.