China promises retaliation to US tariffs

China has hit back at US President Donald Trump’s threat of further tariffs, promising retaliation should the US increase trade penalties by another US$267 billion as Trump suggested.

“If the United States insists on imposing another round of tariffs on Chinese products, China will definitely take countermeasures to safeguard its legitimate rights and interests,” foreign ministry spokesman Geng Shuang said, according to ABC News.

Geng did not detail the countermeasures, but the government has threatened “comprehensive measures” before – signalling that it may be considering economic regulation to disrupt the operations of American companies on Chinese soil as it runs out of imports for penalties.

Trump told reporters on Air Force One that he had a further US$267 billion worth of tariffs ready to go on short notice if he wants – on top of the US$200 billion about to take effect.

According to GlobalRetail Data managing director Neil Saunders, this latest round of tariffs extend into a vast array of consumer goods.

“Many retailers will now be faced with a difficult choice of whether to pass the cost increases across to consumers or to take a hit on their margins,” Saunders said.

“The exact response will vary from retailer to retailer but, in our view, both strategies are likely to be used.”

The cost increases may come amidst a slew of other cost increases for retailers, including increases spending on technology, elevated logistics costs, higher petrol prices, rising labor expenses and rising rent and electricity.

He noted the possibility of retailers shifting production in order to combat the cost increases, but given the extensive manufacturing capacity in China as well as the difficulties in quickly shifting supply chains, this option is unlikely to be a quick fix.

Trump’s ultimate goal is to have US businesses make their goods on home soil, but as analyst Tim Bajarin told the AFR, tariffs will likely only result in more expensive goods for consumers.

What does this mean for Australians?

Much of the discussion surrounding this issue is based around the US and China markets, but the impact from these tariffs can be felt in other markets as well, including Australia.

“Few sectors feel the impact of changes in these links more than the retail sector,” IBISWorld senior industry analyst Hayley Munro-Smith tells Inside Retail.

“Global trade is interconnected and it is the chain reaction, rather than any direct impact, that will likely hurt Australian retailers the most.”

According to Munro-Smith, this will be primarily due to the increased cost of doing business for company’s that manufacture in China or the US. This likely filters down to an increase in prices for consumers, or these businesses offsetting the increased cost of business by cutting back on other expenses – such as buying less from suppliers or bargaining for lower prices.

“The spending capacity for many Australian consumers is already razor thin,” Munro-Smith said.

“Any increase in prices by retailers will be difficult for consumers to bear, with many deciding to buy less, buy the cheapest option, or simply go without to make ends meet.”

This potential loss of sales could become ‘the straw that broke the camels back’ for some retailers as they become unable to weather the change in consumer behaviour, with many in the sector unable to grow or maintain sales in the current environment.

“Without meaning to diminish the challenges that retailers have faced and their impressive efforts the keep the sector alive over the last decade, the battle is far from over,” Munro-Smith said.

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