Arkansas Companies Dealing With Tariff Costs

Jie “Alice” Li saw an opportunity two years ago while working as a state auditor for Arkansas in Little Rock.

She took the plunge, opening Tenergy Trading LLC to supply machinery and machine parts for businesses, mostly in the steel industry. Li arranged a main supplier in China, her home country, that could provide custom-made machinery at a reasonable price.

Things were going well. That was then.

Now, Li is back in China, trying to get her suppliers to join her in a “sacrifice” to help her stay competitive in the wake of the current tariff war between her home country and her adopted one. President Trump raised tariffs to 25% on $50 billion of Chinese goods in July 2018 and bumped tariffs to 25% on another $200 billion of goods in May.

Trump was scheduled to meet with China President Xi Jinping over the weekend at the Group of 20 meeting in Japan and has said tariffs as high as 25% could be placed on more Chinese goods.

“This year, my price is no longer competitive when they inquire from domestic manufacturers,” Li said, referring to her customers. “I’m guessing my price was competitive last year, maybe 15% or 20% cheaper. But now I lose that.”

Xiaoxiao “Shelly” Jia, the U.S. sales director for Zhejiang Xieli Science & Technology Co. in Little Rock, said her company is trying to resupply itself from smaller businesses and increase production at its factory in Vietnam. Jia said the company, which produces party favors and gifts for Walmart, Target and Michael’s, is running into obstacles; its Vietnamese workers have to be retrained but the manager responsible for overseeing that training can’t move full-time to the country because his family lives in China.

The company will try to absorb the 25% cost increase but it would erase its profits, Jia said.

“We have to pay the taxes,” Jia said. “If we can’t eat 25% of the loss, all our U.S. customers have to pay. We cannot keep the same price. It’s too much to lose because we don’t make that much profit.”

‘Trade Wars Unpredictable’

David French of the National Retail Federation in Washington, D.C., recently lobbied the Trump administration to avoid tariffs because research showed they could cost 2.2 million U.S. jobs and cost the average four-person family an addition $2,300 annually.

“You don’t change vendors easily or overnight so stability and certainty are important parts of the value proposition for retailers,” said French, the group’s senior vice president of government relations. “What we are engaged in right now with a series of trade skirmishes around the world are things that undermine stability and certainty. Anything that destabilizes or shakes up global supply chains is by definition going to add costs. Where those costs are felt — there is a lot of debate right now of where those costs are felt — but inevitably those costs are going to find their way to the consumer.”

French said when or if the trade war is resolved is the “big unknown.”

“Trade wars are unpredictable,” French said. “I think both President Trump and President Xi Jinping have a real reason to make a deal … or at least get closer to making a deal. I think it would be in both of their interests to find common ground and move on, but you never know.

“Both are operating in ways that are somewhat nationalistic.”

Walmart CFO Brett Biggs said during the company’s first-quarter earnings conference call in May that the retailer expects costs to rise for customers.

“Our goal is always to be the low-price leader, and we’ll continue to actively manage pricing and margins with our customers and shareholders in mind,” Biggs said. “We’re going to continue to do everything we can to keep prices low. That’s who we are. However, increased tariffs will lead to increased prices, we believe, for our customers.”

Li said she looked at product prices from domestic suppliers and they were more than what she had had from China before the tariff war.

“I know it is much more expensive,” Li said. “The burden kind of falls on my customers. I feel bad the customer has to pay the duty, the tariff. I am concerned how long they are waiting to keep buying from us.”

Both Li and Jia hope that the two leaders can reach an agreement soon, or at least agree to not raise new tariffs. Li said that, from what she has read in the news, it doesn’t appear the trade war will end anytime soon.

“It’s going to be a lose situation for both of us,” Jia said, if an agreement can’t be reached.