WMT Walmart Inc

By Sarah Nassauer and Josh Zumbrun 

The U.S. decision to impose tariffs on Chinese bicycles, handbags and thousands of other consumer goods won't hit most items that will be in stores this holiday season, but retailers are hustling to speed some shipments through ports and bracing for higher costs next year.

President Trump said Monday he would slap the new tariffs on about $200 billion in Chinese imports, including typical holiday purchases such as Christmas lights and wrapping paper. The 10% duty will take effect Sept. 24 and will rise to 25% at the end of the year, according to administration officials.

The timing means most holiday goods for 2018 aren't likely to be subject to big price increases, said industry consultants and executives, because many leading chains like Walmart Inc. and J.C. Penney Co. already have imported most of their winter items, and the strong U.S. economy will allow retailers and their suppliers to absorb much of the initial costs.

"Ten percent seems like a wash with the appreciation of the U.S. dollar, " said Murali Gokki, managing director at consultancy AlixPartners. But, he said, over the holidays the tariffs could affect smaller retailers that ship seasonal items late or retailers importing hot items at the last-minute.

"Most large retailers already have landed most of their holiday goods by the first of October," said Chris Sultemeier, former executive vice president of logistics for Walmart, who left the world's largest retailer last year. He said the tariffs will have a greater impact on goods that will arrive at U.S. ports in November, December and beyond. Retailers probably will try to accelerate spring products through customs before the potential 25% tariff takes effect, he said.

The initial tariffs implemented by the U.S. earlier this year have had mostly limited macroeconomic impacts because the goods affected by them -- including washing machines and solar panels -- were a small part of the economy. The latest tariffs against China significantly raise the stakes, with tariffs now hitting about 11% of total U.S. imports and around half of all trade with China.

While some companies can shift their supply chains to avoid the tariffs, the impact could be unavoidable for others, said Craig Allen, the president of the U.S.-China Business Council, a Washington trade group which represents American companies doing business in China. "There's no doubt there's a huge amount of ships on the water right now whose products will be affected by this," he said.

An analysis from Moody's estimated the planned trade restrictions would exact their greatest toll next year, reducing the U.S. economy's growth rate by 0.25 percentage points in 2019. Moody's estimates the economy will grow 2.3% in 2019, a sharp step down from the 4.2% annualized rate reached in the second quarter of this year.

Some products will be hit indirectly. The latest round will affect some toy companies that finish their products in the U.S. as a result of tariffs on dyes and some materials that are used in packaging, said Steve Pasierb, president of the Toy Association Inc., a trade group whose members include Mattel Inc. and Hasbro Inc.

"It's survivable, not a crisis," Mr. Pasierb said. Finished toys like Barbie dolls and Nerf guns haven't been hit by tariffs yet, but Mr. Pasierb worries they will be as the trade tensions escalate. "They're running out of things to put tariffs on."

The latest tariffs list will hit many consumer and household goods, including knit hats and plastic raincoats, handbags and wallets, toaster ovens and power tools. Other items, including Apple Inc. smartwatches and Nike Inc. sneakers, aren't included.

Many retailers said Tuesday they were still evaluating the list of products subject to tariffs and talking with suppliers, saying it was too soon to change course. They had warned ahead of the decision they cannot easily shift suppliers and that for certain items there aren't factories outside China ready to produce them.

"This year's holiday orders have already been placed, and orders for next Spring are well in process," lawyers for J.C. Penney wrote earlier this month to the administration. They noted the department store makes purchasing decisions up to a year in advance and that it can take more than two years to find and audit new suppliers.

The retailer said China accounts for 79% of imports of knit hats and that the next biggest importer, Vietnam, accounts for 9%. "For product after product, there is little to no production capacity outside of China," the company said. A spokeswoman declined to comment further.

Matt Priest, CEO of the Footwear Distributors and Retailers of America, whose members include Nike and DSW Inc., said the tariffs could hurt shoe sales even if footwear isn't included on the list. "If you start driving up costs, it influences the amount of discretionary income that consumers have," he said. "July was our best month ever for shoe stores and then we move into this uncertainty, which is very concerning to us."

As tariffs are implemented, retailers are likely to try to minimize price increases for consumers, asking suppliers to bear some of the cost, reducing their own margins slightly and passing some of the cost along to consumers. "Retailers are sensitive to who is going to be the first mover," and will work to cut costs to limit price increases, said Mr. Gokki at AlixPartners.

"We are closely monitoring the tariff discussions and are actively working on mitigation strategies," a Walmart spokesman said. "One of those mitigation strategies is to understand what our suppliers are doing and what their plans and alternatives are."

The latest action -- a 10% tariff on $200 billion of goods -- would increase costs by $20 billion. If that price increase happened in one quarter, it would cause a one-time bump in the inflation rate of about 0.5 percentage points, according to an estimate from PNC Bank senior economist Bill Adams. Mr. Adams said companies could import some goods from elsewhere, reduce profit margins or pursue other strategies that partially mitigate the price impact.

Customs brokers have been focused on working out which of their customers will be subject to the new duties and whether their shipments will beat the Sept. 24 deadline. The phone "hasn't stopped ringing for weeks," said Mike Lahar, corporate compliance manager at customs broker A.N. Deringer Inc. "If you're shipping ocean you're probably going to be out of luck if it's not already on the water."

--Paul Ziobro and Erica E. Phillips contributed to this article.

Write to Sarah Nassauer at sarah.nassauer@wsj.com and Josh Zumbrun at Josh.Zumbrun@wsj.com

(END) Dow Jones Newswires

September 18, 2018 15:45 ET (19:45 GMT)

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