September 19, 2019
This communication is in follow up to my letter dated August 2, 2019. In the previous letter, I informed you of newly imposed tariffs of 10% on Chinese imports. I also shared with you that there had been softening in the cotton prices. Additionally, in that letter I promised to provide you an update.
The additional Section 301 tariffs on Chinese imports announced by the Trump Administration in early August on $300 billion worth of goods, also known as “List 4,” was divided into two parts: List 4A and List 4B. The duty was raised from 10% to 15% and imposed on List 4A on September 1st, with List 4B set to receive the same 15% increase on December 15th. Unfortunately, the majority of Calderon’s institutional imports are List 4A products and have already incurred the duty. Of late there have been some conciliatory gestures and small concessions between the two countries. Some prior commodity tariffs have been rescinded and some proposed additional tariffs have been delayed. Such de-escalation between the U.S. and China is good, but both sides are still far apart from reaching a real resolution anytime soon.
This uncertainty has many impacts. The global slowdown continues to threaten a worldwide economic downturn and could lead to global recession. This unresolved trade dispute between the two top economies of the world also is causing distortions in commodity markets—particularly cotton. When news of potential progress toward resolution hit the press, the New York cotton price jumped from 58 cents a pound to 63 cents—an unprecedented swing for a single trading day. The U.S.-China trade dispute remains front and center for the cotton market. Last month’s stream of announcements emphasized the propensity for conditions to change quickly, and the resulting uncertainty does not help investment.
The main question or concern is: What will the future impact be to our business? In my humble opinion, the prices of Chinese goods will increase due to tariff. On the other hand, cotton products will most likely see a decrease in price. I foresee changes in prices to take place during the fourth quarter of this year.
In closing, I want to state a very clear fact. While I am not an attorney, in my business practice of 37 years I can assure you that there is no legal way to circumvent the tariff on Chinese manufactured goods. For example, if Chinese fabric is shipped to another country (such as Cambodia or Vietnam) and then stitched, packed, and shipped to the USA, it is still subject to the extra tariff. The U.S. Customs law states that a major transformation of product must take place for a new country of origin to be declared. So, fabric shipped to another country and made into a shirt may be exempt from additional tariff, but fabric for napery processed in an another country does not follow the same rule and is thus not exempt from additional tariff.
I trust the above information is of value to you. I will continue to keep you updated on news that affects our business.
Sincerely yours,
M. Azher Khan
President + Founder