Uncertainty Grips Retailers, Suppliers as Trade War Escalates

The escalating trade war with China has now enraged food suppliers who fear losing export sales and retailers concerned with potential cost increases on imported goods.

While it’s still uncertain how it will all play out on the supermarket sales floor, the industry could see some deflation in fresh foods such as pork, fruits and wines, while prices could soar for imported electronic goods such as televisions. Sources were uncertain of the timing or severity, as some of the new tariffs have only been proposed or threatened.

“In a trade war, the first loser is the consumer,” Neil Stern, managing partner at McMillan Doolittle, told WGB. “Retailers dealing with higher costs for imported items can either absorb the increases or pass them along. But eventually, it will be paid for by the consumer.”

Burt P. Flickinger III, managing director of Strategic Resource Group, said he expected worldwide demand for exported U.S. foods—including in China—would hold up despite the Chinese tariffs, and could blunt the impact at retail; although certain categories, such as California wines, could see greater impacts as foreign buyers turn to alternative markets for supply.

Supermarkets are only now recovering from a prolonged stretch of food deflation, but Flickinger said Wednesday that he believed food inflation would continue in spite of trade war flare-ups, citing high demand. “The world will continue to need U.S. food products, which are the safest and most efficient in the world,” he said.

Related:U.S. Retailers Urge Trump to ‘Do Right’ and Nix Tariffs

The U.S. and China have seen new taxes on goods traded between the countries, sparked by the Trump administration’s efforts to reel in what it called unfair trade practices.

China responded to the U.S. taxes on imported steel and aluminum by hitting U.S. agricultural products, including pork, with a new 25% tax, and a long list of fruits, nuts, herbs and wines with 15% taxes. The White House on Tuesday issued an additional list of $50 billion worth of Chinese imports that were subject to a 25% fee, including televisions and other electronic items. China responded by upping its threat to another 106 products, including soybeans, a major U.S. agriculture export.

Business groups and suppliers have decried tariffs, saying they are bringing new uncertainties to the global supply chain and could hurt industries, companies and consumers.

Hun Quach—VP of international trade for the Retail Industry Leaders Association, a coalition of big-box retailers, including Walmart and Costco—in a statement urged the administration to re-evaluate the proposed retaliatory tariffs.

“Retailers fully support holding our trading partners accountable when there is a proven case of intellectual property theft, but we remain concerned that many of these proposed tariffs will punish American consumers,” Quach said. “Tariffs on everyday consumer products will hit American wallets, not Chinese technology violators, and the presumption that any of these targeted products could be reasonably sourced elsewhere ignores the complexity of modern global value chains.”

Matthew Shay, president and CEO of the National Retailers Association, expressed similar sentiments.

“This entire process creates uncertainty and makes it difficult for retail companies that must rely on complicated global supply chains,” he said in a statement. “Tariffs threaten to hurt consumers, jeopardize job creation and increase the cost of doing business here in the United States. Once again, we urge the administration to work with our trading partners to hold China accountable, advance targeted solutions and recognize the unintended consequences of protectionist trade policies.”

“The U.S. Apple Association is extremely disappointed that apple growers have been caught in what seems will be a trade war between the White House and the Chinese government,” said Jim Bair, president and CEO of the U.S. Apple Association. “With apples being included on China’s list of retaliatory tariffs, U.S. growers face losing an important and expanding export market, to which access was a hard-fought battle. … China’s retaliatory response to U.S. tariffs are just the latest chapter in a long and sad story where U.S. apple growers get hurt in a fight we didn’t start and in which we have no interest.”

U.S. agriculture suppliers in the meantime said they would pay the price for trade posturing on steel and machinery, as export tariffs could cost them

National Pork Producers Council CEO Neil Dierks said nearly $6.5 billion of U.S. pork products—about 26% of the entire U.S. production—were exported last year, with more than $1 billion going to China.