Winter Has Come Early for the U.S. Travel Goods Industry
By Nate Herman
To paraphrase one of my favorite TV shows, winter is coming – and it’s not just another cold spell for the U.S. travel goods industry, it has been a blizzard that kicked the industry’s butt. We all felt the chill. On May 10, ahead of the critical back-to-school and holiday shopping seasons, President Trump increased the punitive tariffs on U.S. travel goods imports from China from 10% to 25%. As noted previously, this 25% tariff is on top of the incredibly high 8%, 10%, 17.6%, 18.6%, and 20% tariffs we already pay on our imports of travel goods. With 82% of all U.S. travel goods imports coming from China, the situation is dire to say the least.
And any prospect for a quick resolution of the U.S.-China trade war seems to have gone out the window in the months since that announcement. Instead, the situation has gone from bad to worse.
Add to this dire situation the fact that on May 31 President Trump withdrew India from the Generalized System of Preferences (GSP) program. India is the third largest supplier of travel goods to the U.S. market.
The bottom line is that our industry is facing a generational shift in our supply chains not seen since the end of import quotas almost 20 years ago.
So, like the heroes from Game of Thrones, can our industry overcome this adversity and find its way to spring?
Let’s look at the options.
You can stay in China. Many of you have long-term relationships with your suppliers. And production is hard to move, or can only be moved over a long period of time, at great cost. But how much of the 25% can you and your suppliers absorb? And will consumers still buy with higher prices during the upcoming holiday season?
You can move your production. It is hard, can be costly and it takes time. But where would you move?
Vietnam is the #2 supplier of travel goods to the U.S. market, but everyone is rushing to Vietnam. And not just our industry. Clothes, shoes, toys, electronics, etc. are headed there too. Even if you can get capacity, you could be paying a steep price for it.
What about the GSP countries – Cambodia, Indonesia, Burma (Myanmar), Thailand, Pakistan, Sri Lanka, etc.? You can import your travel goods duty-free from GSP countries, a nice incentive that makes the investment of time and money more worthwhile. But, as noted with India, President Trump can take away GSP benefits at a moment’s notice. In fact, both Indonesia and Thailand are under review right now. Further, the benefits are temporary. Congress has to renew the program before the GSP benefits expire at the end of 2020. They usually do, eventually, but nothing is for certain in the current environment.
What about this hemisphere? Under the CAFTA-DR Free Trade Agreement, U.S. imports from Central America and the Dominican Republic can enter the United States duty-free. These countries do produce travel goods today, though currently in small quantities. And what about the United States? Is it feasible to return production to a country most of you left decades ago?
Lots of questions, questions only you can answer. Of course, TGA stands ready to help as your companies chart new paths in these uncertain times.
And I have confidence the industry can, and will, succeed. I have witnessed the industry overcome the adversity of 9/11, when travel came to a standstill. I have seen the industry weather the Great Recession. Today’s existential threat to the industry might be bigger but I have confidence the industry, like the heroes of Game of Thrones, will win the battle and live to fight another day.
For more information, please contact TGA’s Nate Herman at nate@travel-goods.org or 202-853-9351.