Tariffs will be devastating for retail, trade group executive says

The new round of tariffs on Chinese goods will have devastating effects on retail and consumers, Rick Helfenbein, president and CEO of retail trade group American Apparel & Footwear Association, told CNBC on Monday.

“I’m surprised today the Dow reacted so modestly. People don’t realize the impact that this is going to have at retail. This will be devastating,” Helfenbein said on CNBC’s “Power Lunch.”

The latest round of tariffs targeting U.S. and Chinese goods went into effect Monday. The Trump administration levied tariffs of 10 percent on $200 billion of Chinese products, including furniture and appliances, with the rate set to increase to 25 percent by the end of the year. In response, Chinese President Xi Jinping’s government said it would impose taxes on 5,207 U.S. imports worth about $60 billion.

The U.S. and China have already applied tariffs to $50 billion of each other’s goods — moves that threaten to derail global supply chains. The Dow Jones Industrial Index dropped 151.29 points to 26,592.21 on Monday.

“This is not funny; it is not fun. We’ve got about half of the imports coming from China going to get hit with tariffs. They gave us six days notice for this,” Helfenbein said.

The American Apparel & Footwear Association represents more than 1,000 retail brands, including Ralph Lauren, Under Armour, Macy’s and Target, among others. Helfenbein said he anticipates retail to suffer and worries the tariffs will kick off a scramble by companies to get out of China and source alternative, cheaper production solutions.

About 41 percent of apparel, 72 percent of footwear, and 84 percent of travel goods imported into the U.S. come from China, Helfenbein said, and it will be difficult to account for that much production capacity elsewhere.

Once companies start leaving China, Helfenbein said, “demand and supply don’t match, prices go up, sales go down, jobs get lost. This is a very difficult situation.”

Furthermore, if the economy weakens, Helfenbein said, consumers will no longer have the option of purchasing cheap Chinese goods — which often helps draw the economy out of recession.

“Prices are going to go up, they are going to stay up, and any downturn in the market will be harder to recover from,” Helfenbein said.