Tariffs: Impact & Advice
As many of you know, the U.S. and China agreed in their recent G20 meeting to continue trade talks and to delay implementing the tranche four tariffs. While we continue to monitor talks, Moller Promotional Products is taking a very proactive approach as it relates to China and our efforts to mitigate potential tariff costs. While this delay gives us time to continue our resourcing efforts, it doesn’t affect any of the tranche three products, including certain cap and bag styles that we have been paying an increased 25% tariff on since mid-May.
As a result, we are temporarily increasing prices on these tariff-impacted styles beginning July 15, 2019. Please note that when the cap and bag tariffs were first announced, we started moving those products from China. We began with 240 China-sourced items and are on track to move half of those to other countries by year-end, and we have a goal to move 100 more in 2020.
Overall, our team has worked extremely hard to significantly reduce our exposure to China and any tariff cost impact to you. At the beginning of 2018, China represented 24% of our total apparel purchases. Today, we have reduced this to 18% and plan to further decrease it to 8% by the end of the year. This decrease represents hundreds of styles resourced to other countries without sacrificing quality or compliance. This has been a massive undertaking to make sure our customers notice no changes in the product.
We know you have choices of products both within our catalog and among our competitors and that is why we are doing everything in our power to lessen the impact and duration of these temporary price increases. Our view on adjusting prices is to raise only the minimum needed to reflect the significant tariff costs we are paying and to commit to lower prices right away as styles are sourced elsewhere or the tariffs are rescinded. We will, of course, continue to monitor all of the trade negotiations and keep you up-to-date as things progress.
First, I would like to thank you for your support over the years. When it comes to promotional product distributors, we realize that you have MANY choices. We are thankful for every order that you entrust us to produce on behalf of your company.
In an effort to help you become better informed, we have prepared this correspondence for you regarding the 301Tariffs. While we all had hoped that the additional 25% tariffs would not come to pass on June 1, the reality is that they did. Fortunately, Moller Promotions partners with many top ranked vendors who have the most significant inventory, and many items will not be impacted. Of our over 1,000 SKU’s, we anticipate price increases particularly on bags and backpacks in the immediate future. These new prices will become effective on July 1,2019.
We will continue to monitor inventory levels, tariff rates, and adjust pricing only when absolutely necessary in the future. As you are aware, the 4th list of imported items from China is now being reviewed for consideration. This new list of items would impact virtually every product imported to the USA. Should these new items be added to the list of existing tariffs, another review of pricing going forward would be necessary. I will update you on the status of pricing in late August so that you may prepare for your Q4 holiday season.
Your understanding and partnership during this time of economic uncertainty is appreciated. We will continue to keep open the lines of communication to make sure you have the most up-to-date information regarding how these changes will impact our industry.
From all of us at Moller Promotions, we wish you a prosperous and productive summer!
Michelle Moller, President
TARIFFS: And how they will affect you.
How the tariffs may affect your buying power in the coming year.
The tariffs are currently at 10% on some products coming from China. Many of our suppliers are NOT charging the additional 10% on those products for the rest of the year. However, unless the tariffs are removed, the tariffs will increase to 25% at the beginning of 2019. Additional tariffs are currently being considered on the remaining products coming into the US from China. So, yes, we do expect the tariffs to increase costs up to 25% on affected products beginning January 1, 2019.
We've been following reports on the tariffs for some time. A recent article indicated that the majority of suppliers in attendance at a recent industry event said they anticipate the increases to be more likely between 11-20% higher than this year's prices, meaning suppliers may absorb some of the tariff costs.
We are hearing that some suppliers will not be printing catalogs at all this year due to the uncertainty in pricing while others may print catalogs without pricing at all. Suppliers are also floating the idea that pricing may fluctuate throughout the year, which is not customary. So, remember in the new year to verify pricing before purchasing.
Remember that tariffs will and are affecting more items than just promotional products. They affect products you use every day in your homes as well. Additional talks between the US and China are planned for November. There is a chance that tariffs could be reduced or removed at that time, although it seems that most analysts do not see a clear path to that happening. More or steeper tariffs could be levied, as well.
How can we combat higher prices? Moller Promotional Products can work with you to provide items that fit within your budget. We also have technology that allows us to search prices on products across our industry. We can recommend products from suppliers that aren't passing on as much of the tariff's costs as others, thus allowing us to provide the lowest cost we can on the product you want from a reliable supplier. And, remember, the majority of our suppliers are not raising prices for the rest of this year, so, if you are able to purchase before the end of 2018, we encourage you to do so. We will continue to keep you updated as we learn more about the future of tariffs and how they will affect promotional items.