Trade war between the U.S. and China continues to intensify. This latest escalation is harmful to American retailers and consumers alike. A recent statement from a Chinese government minister confirmed that there are currently no negotiations regarding trade between the two nations. The minister’s demand that unilateral tariffs be revoked helped to further sour this already tense relationship. As tariffs continue to increase, the U.S. retail sector is bracing for a crisis in the future. Shortages and increasing prices threaten, particularly for clothing, shoes, and lower-end consumer products.
Beginning on May 2, 2024, businesses that depend on the de minimis tax exemption from China will experience drastic changes. Dropshippers will bear the brunt of this new policy change. This move, in addition to current tariffs, is likely to make inventory woes for big box stores even worse. Most of these companies are having a difficult time pivoting their sourcing plans. The compounding effects of these trade policies are increasingly felt across the supply chain.
Inventory Challenges for Retailers
As an early warning sign, big box retailers such as Walmart, Target and Home Depot are already experiencing the pressure on their inventories. The current round of escalating tariffs are crushing companies’ capacity to change direction on sourcing. This problem is felt most of all in the dynamic apparel and footwear industries, where turnover is high and margins are low.
Steve Lamar, president of the American Apparel and Footwear Association, underscored the gravity of the situation, saying
“These prohibitively high new tariff rates operate as an import ban.”
Slashed orders from China are sending ripples throughout the national supply chain. A decline in freight vessel bookings is shoving it toward a tipping point. In the last few weeks, carriers have blanked vessels, deleting 35% to 42% of their planned capacity. This action draws attention to a deep operational rift.
Retailers are preparing for a difficult holiday season. They don’t want to be greeted with blank shelves for price sensitive imports, such as toys and other seasonal children’s goods. Casey Armstrong, Chief Marketing Officer of ShipBob, commented on the urgency of the situation:
“When that engine stutters — whether from tariffs, customs delays, or sourcing constraints — it’s the lowest-margin, fastest-moving goods that disappear first.”
Supply Chain Impacts and Import Levels
Jonathan Gold, National Retail Federation Vice President for Supply Chain and Customs Policy, said the decline in import cargo levels is steep. This steep drop is exacerbated by recent tariffs and continuing market uncertainty. In 2024, imports from China accounted for approximately 37% of all U.S. apparel imports and about 58% of all U.S. footwear imports.
Even major retailers like Walmart and IKEA are reducing their reliance on orders from China. Some analysts have jumped to extreme conclusions, spotting the potentially clear trend of plummeting manufacturing new orders and shipping tons. Michael Salerno emphasized the importance of monitoring port container volumes in the coming months:
“We are looking at port container volumes mid-May, June, and July.”
The trade war is a very big deal for small businesses. Now they are challenged by inventory shortages right as they prepare for critical winter holiday order fulfilment. Jonathan Gold remarked on the challenges these businesses face:
“The uncertainty around the tariffs is challenging for businesses, especially small businesses that are currently preparing for critical winter holiday orders.”
The Road Ahead
In this new reality, companies will have to be more agile than ever before as market dynamics continue to change rapidly. The elimination of the de minimis import tax exemption raises new challenges for dropshippers. They rely on low-cost import strategies to be competitive in their core businesses. This is especially true for fast-moving consumer goods, such as electronics and electronic accessories that constantly refresh. This prevents the formation of inventory gaps for retailers and, therefore, their inability to respond to consumer demand.
Alan Murphy noted the extreme spike in blank sailings for vessels headed to the U.S., indicating a troubling trend in global shipping logistics:
“For the Asia-North American East Coast, there is now a major spike in blank sailings for the week starting on May 5, which is quite extreme.”
As manufacturers across the country begin to plan their next moves, they should take into account both the short- and long-term effects of these tariffs. Retailers are extremely dependent on imports from China for much of their inventories. This dependence creates unforeseen difficulties in stock replenishment as they navigate strict and complex trade regulations.