Trump's presidential win has been met with mixed feelings in the US apparel, footwear and retail sectors which welcome plans for a tax cut but are concerned by proposed tariff hikes.

As the US and much of the world gears up for life under newly elected President Donald Trump, the US apparel, footwear and retail sectors consider what changes they can expect to see and what it will mean for the way they do business.

For US retail an anticipated tax cut will be welcomed, but there is significant concern around looming tariffs under Trump which could further pressure consumer spending in an already constrained environment.

Trump has floated a wide range of proposals to impose new tariffs on imports into the United States. Two specific proposals call for greater scrutiny: A) a universal tariff of 10% or even 20% on all imports into the United States from all countries, and B) an additional tariff of 60% or even 100% on all imports from China on top of existing tariffs.

Tariffs and geopolitics centre of attention

Shore Capital analyst Clive Black notes it was a “clear win” for Trump and one that has the basis to “notably change the course of US policy in many areas”.

“Amid the initial digestion, the new President takes office in February, and so there is time for dust to settle and to further gauge where his policy priorities will be set.”

But Black notes his policies could impact other global markets albeit in an indirect manner and particularly concerning plans around tariffs.

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“A quite upfront policy arena for Trump in his election campaign, where he has demonstrably scored many more positive punches with the electorate on economic matters than his opponent, is tariffs. Whether the UK food and non-food sectors are at the forefront of his new Government’s attention on such matters, is doubtful over exports from say China, Brazil and India, and maybe France too. However, the waves from tariffs can lap into domestic markets in many ways.

“Additionally, tariffs tend to work in two ways and what response may China impose on US exports if high tariffs on its goods are applied, and how does this work through into wider trade flows and the global economy?

“It is a major potential headache for global economic trade and growth. Additionally, within the US there is the matter of what high import tariffs on material product categories may mean for US consumer prices, food and ‘gas’ inflation were notable points of resonance for Trump in the election with voters, and how would any evolving tariff infused consumer price environment work through for US Fed rates?”

And Black also raises concerns around geopolitical tensions with Trump coming in amid the Russia-Ukraine and Gaza-Israel-Lebanon conflicts, and now Iran. He says the former “has already had notable implications upon the UK consumer economy.”

He adds: “Current times embrace big geopolitical risk,” but that said, he believes “conditioning factors that can be expected to evolve with the consequential outcomes to follow will come through as Mr Trump takes office.”

“A mixed bag of positives and negatives, with a large dose of uncertainty”

GlobalData retail analyst Neil Saunders said not for the first time in his life, Trump has “stunned the nation and the world”.

But his return to power means many of his policies, that people thought they had seen the back of, will come back into play.

For US retail, one of the biggest positives, he says, is that Trump will almost certainly renew the tax cut package he introduced during his first term in 2017, which was due to expire at the end of 2025.

“This will be broadly helpful to consumer incomes, although retailers should not expect to see a surge in spending as it is about rolling over an existing policy that is already baked into consumer behaviour.”

He adds there is a possibility general taxes might be cut further, facilitated “by a friendly congress” though a soaring budget deficit will inevitably act as a constraint here.

“As such, it’s likely that new cuts will be targeted and focused on exempting tips and overtime pay from income tax and allowing households to take more deductions. In the round, this will put more money into consumers’ pockets and will bring a small boost to retail spending.”

Trump’s proposed corporation tax cut of 15% will likely further benefit retail earnings and facilitate US retail investment.

On the other hand, the biggest downside to the US retail sector will be Trump’s proposals around tariffs.

“While immediate action is unlikely as any new tariffs would take time to implement, the threat of increasing tariffs on China to 60% and on other countries to 10% to 20% would create a major headache and add significant additional cost for retail. Despite Trump’s assertions to the contrary, tariffs are paid by the companies or entities importing goods and not by the countries themselves. This means the cost of buying products from overseas, whether directly or as an input for manufacturing, would rise sharply.

“Given the trade between Chinese manufacturers and US retailers, a strict tariff policy would mean retailers initially either taking a big hit on profits or being forced to put up prices, which would fuel inflation and dampen retail volumes. Over time, supply chains would adjust to a new tariff regime, but this would not happen overnight. The small hope is that the tough talk on tariffs is more of a negotiating ploy, and that a serious policy play and that what is finally implemented will be relatively modest in scope.

“A side effect of tariffs and higher prices would be interest rates staying higher for longer, which would be unhelpful for the housing market which, in turn, will act as a drag on home-related categories. While Trump promised lower interest rates, and wants more control over the setting of rates, it is not in his immediate gift to enact this kind of change.”

“Economic outlook anxiety”

The initial response to the election results is mixed, asserts Julie Hughes, president of the US Fashion Industry Association.

Many fashion brands and retailers anticipate a positive tax environment with Trump as President and a Republican-controlled Senate. Still, equally, there is a lot of anxiety about the economic outlook, she notes “especially with Trump talking about his love for tariffs”.

“Higher tariffs would spike prices and increase inflation. And the uncertainty about trade policy and higher tariffs will make it harder to plan for 2025 and beyond. We will be talking about the outlook and options at our conference next week as the experts assess the impact on the fashion industry.”

“Tariff policy will be a challenge”

The AAFA’s president and CEO Steve Lamar says tariff policy under the new administration will trigger new inflationary cycles if campaign proposals are fully enacted, making it more expensive for Americans to get dressed every day.

“We have seen first-hand the negative impact of tariffs ever since the tariffs imposed under the Tariff Act of 1930 helped create the Great Depression. The Section 301 tariffs that took hold in 2018 under President Trump’s first term have also remained in place, driving 40-year high inflation for clothes and shoes. Tariffs are taxes paid by U.S.-based businesses and American consumers, not on China or other supplier countries. These tariffs disproportionately harm lower-income American consumers and female consumers with higher tariffs on lower priced products and on women’s clothes and shoes.”

But the AAFA is pinning its hopes on working with Congress and the Administration to renew expired and expiring trade programmes including The African Growth and Opportunity Act (AGOA), the Generalized System of Preferences (GSP), and the Haiti HELP/HOPE preference programme.

“Immediate and long-term renewal of these measures, combined with a revived trade agreement program, will create predictable opportunities for our industry to diversify and invest, creating American jobs and supporting the provision of affordable and sustainable fashion for American families. We also look forward to initiatives to protect our shipping channels and ports put a stop to the influx of counterfeit goods across third-party e-commerce platforms, and drive other policies that are not just well-meaning but well-crafted, implementable, practical, harmonized, and ultimately – successful.

“Beyond Washington, our work will continue with elected officials in state capitols around the country, making sure that state regulations are harmonized and effective, and incorporate stakeholder input.”

“Working to make America more competitive”

National Retail Federation president and CEO Matthew Shay said effective trade policies will increase America’s competitive advantages in research, development and innovation and will protect strategically critical infrastructure while increasing the standard of living and quality of life for all Americans.

“However, the adoption of across-the-board tariffs on consumer goods and other non-strategic imports amounts to a tax on American families. It will drive inflation and price increases and will result in job losses,” Shay warned.

“The retail industry stands ready to work with President-elect Trump and Congress to enact tax, trade and regulatory policies that make America more competitive, increase domestic investment and create jobs.”

By Just Style