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The full impact of United States President Donald Trump‘s trade war, including tariffs, reciprocal tariffs and escalating tariffs on Chinese goods, has yet to be seen.
And while there is currently a 90-day pause on his reciprocal tariffs on about 60 countries and territories, what might follow the reprieve, along with all the economic uncertainty in general, is affecting Canadian clothing retailers that make their products overseas.
Many apparel companies had already shifted production from China to other Southeast Asian countries such as Vietnam and Cambodia due to tariffs imposed during Trump’s first term.
Many people assume the tariffs will lead to higher prices on goods, but this may not be the case for some retail companies, particularly those that don’t enjoy as much brand loyalty from consumers, said a senior analyst at Bank of Montreal who specializes in retail and e-commerce.
Simeon Siegel said there are ways retailers can absorb the cost of tariffs on production without necessarily raising the price.
“Tariffs do not give companies permission to raise prices. Consumers give permission to raise prices,” he said.
Siegel, who covers Lululemon Athletica Inc. and other apparel companies such as Nike Inc. and Birkenstock Holding PLC, said retailers might ultimately try to offset the higher tariff costs with higher prices, but discounts could return just as quickly if shoppers push back.
Vancouver-based Lululemon is one of many apparel retailers that could potentially be affected by Trump’s “Liberation Day” reciprocal tariffs, which included a 46 per cent tariff on Vietnam.
The company started moving its production to Vietnam in 2016, along with other companies that have diversified manufacturing in recent years, in hopes of avoiding Trump’s previously imposed tariffs on China.
Last Wednesday, Southeast Asia was thrust into the same conversation as China, Siegel said.
“All these companies that spent a lot of time and money believing they were de-risking their manufacturing, doing what they were supposed to be doing and moving into countries like Vietnam, found out they were going to be punished just as harshly, if not more,” he said.
Those companies’ stock prices fell the day after Trump released his reciprocal tariff chart, with Aritzia Inc. taking the biggest hit on the S&P/TSX composite index, with its shares dropping more than 20 per cent, and Lululemon’s shares were down nearly 10 per cent on the Nasdaq, as reported by the Canadian Press. Gildan Activewear Inc. shares were down almost ten per cent on the S&P/TSX composite.