U.S. retailers bet on Congress over Bolivia to thwart Trump border tax issue


Reuters

UPDATE 1-U.S. retailers bet on Congress over Bolivia to thwart Trump border tax issue


(Adds tax details in paragraph 2)
    By Nandita BoseCHICAGO, April 21 (Reuters) - Target Corp <TGT.N>, Wal-Mart
Stores Inc <WMT.N> and other retailers are shelving
considerations to move supply bases closer to the United States
in the face of a possible border tax, banking instead on killing
support for the tax idea in Congress.
    President Donald Trump's push to impose a tax on imports,
such as the 20 percent levy initiated by House Republicans,
could raise U.S. consumer prices by as much as 25 percent,
industry officials said. Last week, the President said he
favored an 'import tax' that could be adjusted to reflect the
country of origin's tax rate for U.S. products.
    The decision by retailers to forestall supply chain
investment in countries such as Bolivia and Romania to focus on
lobbying Congress shows how Trump's ambitious agenda has
instilled a new level of risk operating outside U.S. borders.
But the vagueness around the tax proposals and whether they may
ever be implemented means retail industry executives are still
not willing to change their operating infrastructure.
    The Retail Industry Leaders Association, which is leading
the industry lobbying effort, has conducted 140 meetings with
lawmakers since December, focusing on the costs of a new tax and
encouraging lawmakers who oppose the tax.
    Prospects for a quick passage of a tax bill took a hit last
month when the Republican attempt to overhaul the national
healthcare law failed to get a vote in the U.S. House of
Representatives. Trump and Republican leaders have said they
still intend to pass a healthcare reform law first, casting
further doubt on when Congress may consider tax reform.
    The border tax proposal likely will be "as messy as the
healthcare bill," according to Brian Dodge, senior executive
vice-president of public affairs for the retail lobby group.
    Target, for one, thinks the industry's lobbying efforts are
succeeding.
    "We are working on educating lawmakers and President Trump
hasn't embraced it yet, so we definitely think we are making
progress," a senior company official at Target said on condition
of anonymity.
    There is good reason for retailers to fight the tax idea.
RBC Capital Markets forecast such a levy could reduce profits of
six large U.S. retailers by as much as $13 billion in its first
year, with Wal-Mart alone seeing its federal tax bill jump to
$16.6 billion from $6.6 billion. For a graphic please click http://tmsnrt.rs/2oVlOPB
    Best Buy Co Inc <BBY.N>, which relies heavily on electronics
imports, could see its earnings completely wiped out, RBC
warned. Best Buy declined to comment.
    Firms with less exposure to overseas suppliers - ranging
from off-price chains like TJX Cos <TJX.N> and Ross Stores
<ROST.O> to cosmetics seller Ulta Beauty <ULTA.O> - would feel
less impact than heavy importers like Wal-Mart, Target and
Costco Wholesale Corp <COST.O>, analysts and consultants said.
    TJX Companies and Ulta Beauty declined comment. Ross Stores
and Costco did not respond to requests seeking comment.
    Steve Osburn, director of supply chain for retail
consultancy Kurt Salmon, said it is more cost effective to spend
on lobbying than on supply chain relocation at this point.
Retailers also have other investment needs, especially around
winning consumers who want to shop from home.
    "They are putting a lot of money in e-commerce initiatives
to compete online so there are not a lot of funds to spare," he
said.
    One outlier is luxury handbag maker Rebecca Minkoff, which
sells its own products and supplies other retailers, like
Nordstrom Inc <JWN.N> and Amazon.com Inc <AMZN.O>.
    The prospect of a U.S. border tax factored into its recent
decision to supply U.S. customers from Europe as it mitigates
logistics costs to supply to the United States, according to Uri
Minkoff, the firm's founder and CEO.
    "The process has intensified in the past six months," said
Minkoff.

    WHERE THE SUPPLY CHAINS ARE
    The decision to bank more on the lobby effort to kill
support for the tax idea comes after retailers spent the last
few months considering whether to move some of their production
to supply bases like Bolivia, Brazil and other South American
countries with low wage rates, as well as European countries
like Hungary, Bulgaria and the Czech Republic, industry sources
told Reuters.
    A return to the United States was also a consideration, the
sources said.
    Shifting production from existing supply bases like China is
costly, may involve intellectual property issues and disrupts
long-term supply contracts, making it hard to plan and execute
such moves, two industry sources said.
    Consultants have told retailers they could mitigate shipping
costs enough to offset any border tax, while avoiding the cost
of moving production into the U.S, the sources said.
    But so far they are not proceeding with major supply chain
changes, according to retailers and industry consultants.
    "Wal-Mart is not ready to spend money to deal with this,"
said a supply chain consultant who works with the retailer but
requested anonymity for fear of disrupting the firm's
relationship with Wal-Mart.
    Wal-Mart has reviewed its options with supply chain
consultants, but has not yet commissioned a concrete contingency
plan, sources with direct knowledge of the matter said.
    Wal-Mart declined comment.
    Executives at smaller retailers and brands like Samsonite,
Crate and Barrel and Steve Madden said there is little
competitive impetus for action because they believe a border tax
would hurt them and competitors equally.
    Samsonite was studying reviving its U.S. manufacturing base,
but is not close to taking action.
    "Setting plans (based) on policy proposals that are yet to
be implemented is not right," Samsonite Chief Executive Officer
Ramesh Tainwala told Reuters.
    Minneapolis-based Target is limiting itself to conducting
feasibility studies. "We just don't want to get ahead of
ourselves and invest capital," the Target official said.
    Target declined comment.

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How the border adjusted tax system works    http://tmsnrt.rs/2oVlOPB
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 (Editing by David Greising and Edward Tobin)
 ((nandita.bose@thomsonreuters.com; +13124088726; Reuters
Messaging: nandita.bose.reuters.com@reuters.net))

Keywords: USA RETAIL/BORDERTAX (UPDATE 1, GRAPHIC)



This article appears in: Stocks , World Markets , Economy , Politics
Referenced Symbols: AMZN , BBY , COST , JWN , ROST


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