There’s strong populist and political sentiment in the United States for American-made products, or perhaps more to the point, for American jobs that local manufacturing would create. But for a lot of everyday consumer products, it has been a long time since the U.S. has been the dominant producer. So while many American consumers complain that they don’t see nearly enough “made in U.S.A. ” labels on the products they buy, Walmart and other big merchants continue to import huge quantities of goods made elsewhere (to be fair, Walmart, while it may be the biggest importer in the U.S., still sources a majority of its products domestically – the result of the robustness of its grocery operations). The result of all that importing has been a steady supply of ever-lower priced consumer products, and retailers continue to search the globe for the lowest cost-of-goods for their assortments. And as RSR has noted in its annual pricing benchmarks for years, a low price – for better and for worse – has become the #1 attribute of “value ” for most consumers, superseding quality, timeliness, and even convenience. In short, both retailers and consumers in America are addicted to the low prices that global sourcing makes possible.

The Lay Of The Land

One result of “globalization ” has been that the U.S. has a trade deficit with many other countries, especially China. But retailers and consumers have since the beginning of this century benefitted tremendously from China’s entry into the World Trade Organization in 1999. At the time, the National Retail Federation (NRF) expressed satisfaction with China’s entry. NRF’s then-president Tracy Mullen stated that: “After 13 years of negotiations, we are very pleased that an agreement could finally be reached. Conclusion of this agreement is a critical step in the path to Chinese membership in the WTO. To join the WTO, China has made market access commitments in its agreement with the U.S. that will promote economic growth in both countries. U.S. consumers will continue to enjoy access to high-quality, value-priced goods produced in China and American made- products will have better access to the largely untapped Chinese marketplace.”

According to a 2013 article in the Asia-Pacific Journal, “… American imports from China rose by 92 percent in the three years following China’s WTO entry, having risen by just 46 percent in the three previous years. As the business environment in China improved, American entrepreneurs explored new opportunities. The lure of the China market has been felt across the board by American business. In 2004, Wal-Mart was America’s largest corporation, with revenues that made up 2 percent of the nation’s GDP. Of Wal-Mart’s 6,000 suppliers, 80 percent were in China. ”

China’s current dominance in the manufacture of consumer products isn’t the only issue: the North America Free Trade Agreement (NAFTA) continues to be a lightning rod political issue in the U.S. Assessing how much NAFTA has actually affected the U.S. trade deficit is apparently difficult, but according to a recent piece in Inc. Magazine, “Trade has grown sharply between the three nations who are parties to NAFTA but that increase of trade activity has resulted in rising trade deficits for the U.S. with both Canada and Mexico-; the U.S. imports more from Mexico and Canada than it exports to these trading partners. “

The Border Adjustment Tax

Retailers’ ability to continue to deliver low priced offerings to consumers has a powerful new adversary, and one that a few years ago might have seemed highly unlikely – the Republican Congress. Here’s why: The GOP leadership has for years obsessed about two related issues, reducing the U.S. national debt, and producing balanced budgets. Without getting into the history or politics of that, the net is that neither of those things have happened in a long, long time. Another guiding principle of the GOP philosophy is that lower corporate taxes result in more U.S. jobs and production. But reducing the national debt, balancing budgets, and lowering corporate taxes are in conflict – especially now that the U.S. has a president who is in favor of bringing manufacturing jobs back to the U.S.

So, how to fix all of these seemingly irreconcilable differences? Part of the current GOP Congress’ solution is something called the “border adjustment tax (BAT) “, a proposal whereby a 20% national tax would be imposed on all imported goods and services, while goods and services exported from the U.S. wouldn’t be taxed at all. According to a February 2017 article on the NPR (National Public Radio) website, “Supporters of the border adjustment tax say it would encourage businesses to keep their operations in the U.S., creating more growth and jobs here. Opponents say it would raise sharply the cost of imported goods, from clothes to cars, for American consumers… The border adjustment tax idea has divided the American business community. Not surprisingly, many big exporters including Boeing and Pfizer like the idea of not paying any tax on aircraft or pharmaceuticals they export. On the other hand, more than 100 big retailers, from AutoZone to Wal-Mart, oppose it. The 20 percent import tax would mean much higher prices on the goods they bring in — from clothes and car parts, to televisions and avocados. “

RILA, NRF And Retailers Speak Out

Understandably, retailers are very concerned about the impact of such a national tax on imported goods. The entire industry is still reeling from the effects of the Great Recession, new and extremely dangerous competition from market aggregators like Amazon, and most importantly, consumers’ digitally enabled shopping behaviors. So retailer trade organization RILA (Retail Industry Leaders Association) organized a meeting in February with President Donald Trump, and it was joined by leadership from the NRF, Target, Gap, Best Buy, JC Penney, Tractor Supply, Walgreens, and JoAnn Fabrics. At the meeting, NRF chief Matt Shay estimated that the tax would cost the average US family $1,700 in the first year alone if enacted. Mr. Trump offered general support for “tax relief “, but the meeting was apparently inconclusive.

Humor – The Pointed Kind

Perhaps as a result of that inconclusive meeting, the NRF did something new and interesting last week – it produced a TV ad to express its concerns about the BAT. But the ad isn’t like other special interest group ads the U.S. public has grown accustomed to. First of all, it’s funny, as in “Saturday Night Live (SNL) “-like funny (take a look! The ad strongly resembles the spoof ads that SNL routinely runs). Secondly, it’s unclear that the ad is pointed at American consumers at all; it seems more intended for the President himself. As the San Francisco Chronicle opined on 3/4/17, “… look at where the federation has placed the ad on television, and you have to wonder if the group also has another audience in mind. The spot is running during the ‘Fox and Friends’ morning program and on ‘Saturday Night Live.’ Those are each shows that President Trump has been known to watch, and retailers have good reason to want to get their message in front of him. “

But the issue isn’t funny at all. The BAT is a big issue for all retailers, and, if the action by the NRF is any indication, one that requires retailers’ immediate attention. As the spoof ad says, “Don’t delay – call Congress today! “