US retail stocks slump as Trump widens tariff net
More than $20bn was knocked off the value of US retail stocks on Thursday as President Donald Trump’s plans to slap a new round of tariffs on Chinese goods sparked concerns on Wall Street over how the industry would cope.
Shares in several of the sector’s biggest names, including electronics chain Best Buy, clothing retailer Gap and department store Kohl’s, closed down more than 7 per cent after the president tweeted that the US would place a 10 per cent levy on another $300bn worth of imports from next month.
“This is a much bigger problem” than previous rounds, said Jan Rogers Kniffen, a retail consultant, because the new round would cover a wider range of consumer goods, from clothing to electronics.
US retailers have been trying to contain the fallout from the existing tariffs by shifting sourcing and production away from China and pushing suppliers to absorb their share of the costs. However, analysts warned that the latest wave could force them either to raise prices or take a hit to profit margins.
Steve Chiavarone, portfolio manager at Federated Investors, said: “Things like sneakers that have avoided the earlier round of tariffs are vulnerable . . . A lot of the things on that list will hit the consumer.”
Other stocks particularly hard hit in the market rout included Abercrombie & Fitch, down 11 per cent, American Eagle, down 8 per cent and Macy’s, down 7 per cent. Overall, the S&P 500 retail index was off 1.3 per cent.
The new tariff threat comes despite an intense lobbying effort from corporate America to convince the White House to avoid escalating the trade war with Beijing. Retailers were among scores of companies who pleaded in testimony to the Office of the United States Trade Representative last month that their particular products should be excluded.
Steve Pasierb, chief executive of The Toy Association, a trade body, had warned that the tariffs would “devastate” his industry. He argued it was unfeasible for members to shift much of their manufacturing outside China given limited facilities in other countries.
On Thursday, he added: “Facts, logic, detailed financial explanations, testimony, and first-hand stories from toy company and retail employers here in the United States apparently still cannot prevail over the power of the tweet.”
The industry immediately hit out at the announcement, made mid-afternoon in a series of presidential tweets. Matt Priest, head of the trade body Footwear Distributors and Retailers of America, said in a statement that he was “dismayed” that “political considerations are outweighing economic common sense”.
Noting that 70 per cent of shoes sold in the US come from China, Mr Priest added: “This move will noticeably raise the cost of shoes at retail, and will have a chilling effect on hiring in the footwear industry.”
Several retailers, including Macy’s, have already warned that annual profits would be put at risk if Mr Trump followed through on his threat to introduce additional tariffs, although the 10 per cent levy he announced on Thursday was smaller than the previously threatened 25 per cent and the president also delayed the start of the tariffs to September 1.
Mike Mullaney, director of global markets research for Boston Partners, said the tariffs would further undermine investor confidence in a retail sector that is already under pressure from the relentless rise of Amazon.
“This is not good — tariffs are taxes, and they cost,” he said. “There will be more uncertainty about the future and businesses will back off on spending because of trade and growth concerns.”
The latest round of tariffs threatened to dent the strong role consumers have played in supporting the US economy, said Nela Richardson, investment strategist for Edward Jones. “The consumer is the pillar of strength. Business confidence is slipping but the consumer is propping up the US economy.”
David French, senior vice-president of the National Retail Federation, said: “The administration is doubling-down on a flawed tariff strategy that is already slowing US economic growth, creating uncertainty and discouraging investment.”