KRWG

The Chinese Effect On Dollar Tree

Nov 11, 2018

Commentary: Major retailers such as WalMart, and grocery stores such as Albertson’s, are at least five miles from my house. However, there is a Dollar General and a Family Dollar store each within a mile of me, and I find it convenient to pop into these discount retailers to buy items such as cleaning products, storage containers, and disposable items. Even though the selection can be limited, the prices are almost always low. Above all, it is the convenience factor that drives me to these stores.

   On the flipside of the coin, I see many families shopping at these two establishments. Mothers and fathers with kids go down the aisle with shopping lists and carefully watch how they spend their money. I am assuming that many of these families do not have a lot of disposable income and they have to watch how they spend every dollar. Seeing these families carefully selecting their purchases in discount retailers reinforces what I have previously stated in this column that the more vulnerable portions of the socio-economic strata are going to be the ones the most affected by the ongoing U.S.-China trade war.

   Recently, the Trump administration announced that if Trump’s summit with Chinese President Xi Jinping in December does not go well, that same month it plans to impose tariffs on another $257 billion of Chinese imports, on top of the $250 billion in tariffs that have already been imposed. To put it into perspective, more than half a trillion dollars’ worth of tariffs will have been imposed on Chinese-made goods this year. The $257 billion would pretty much cover the rest of Chinese-made goods that come into the U.S., including billions of dollars of Chinese consumer goods that are popular in the U.S. because of their low prices. This includes iconic products such as those made by Apple that have not yet fully been affected by the back-and-forth tariffs that are being lobbed at each other by the two countries.

      I recently read an article titled, “Trump’s tariffs and Target are Killing Dollar Tree” on the AOL online site that was authored by Karen Doyle. In this article, Doyle states that the research firm Telsey Advisory Group estimates that approximately 42 percent of the products that Dollar Tree sells are made in China. About 23 percent of what Family Dollar sells is imported merchandise, much of it from China. Tariffs that are now 10 percent on much of the imported merchandise could rise to 25 percent come January.

   Poorer families and families on fixed incomes might be able to absorb a 10 percent increase in the products that they purchase in discount retail stores, however, a 25 percent hike would be felt strongly. Ironically, many of these people who are struggling financially and who would be impacted the most, are probably people who voted for Donald Trump, based on his campaign platform to bring opportunity to the disaffected classes.

   It is unclear how the U.S.-China trade war will play out. It is clear that the U.S. has a bigger hammer in which to impose tariffs, since as a country we import more from China that it does from us. However, China can start to put heat on American companies operating within its borders by increasing red tape, issuing fines, restricting operations, or overtly supporting Chinese companies that compete against the American companies. Economists generally agree that there are no winners in a trade war, and this seems to apply to what is happening at present.

   And what if China starts getting heavy-handed with the U.S. companies operating in its country? Are they likely to reshore their operations to the U.S? A recent NPR report stated that of the American companies who were asked if they were likely to reshore their operations to the U.S. because of the trade war, only one percent were considering taking this action. It is very difficult to establish operations in a foreign country and often just as difficult to bring them back home.

Some companies might hunker down and try to wade the tariff war until the dust settles and both sides give some ground with the objective of ending the war. Other companies might choose another place to manufacture and/or do business in another place that is not in a trade war with the U.S. This also is risky because based on Trump’s propensity to initiate trade wars, the new country in which a firm might establish operations could find itself in a situation to China’s.

Meanwhile, as prices on consumer goods made in China rise, we will probably see families of modest means become even more careful spending their money in discount retailers. It is unlikely that many of the items that they purchase, which are made by companies using economical labor in China, are going to be replaced by U.S. products. Unfortunately, they will continue to be cannon fodder in the U.S.-China trade war.

Jerry Pacheco is Executive Director of the International Business Accelerator, a non-profit trade counseling program of the New Mexico Small Business Development Centers Network, and the President/CEO of the Border Industrial Association.  He can be reached at 575-589-2200 or jerry@nmiba.com