While it is early days for an already turbulent and unpredictable Trump administration, news that the White House has floated the idea of introducing a border tax on imports from Mexico is likely causing anxiety among retailers that rely on such imports. JCK's Rob Bates has provided some early reflections on the border tax idea that, "could have a major effect on the [jewelry] industry." Bates explains: "It wasn’t clear if the president’s proposal would apply to products already manufactured offshore or to companies that move their production overseas after the proposal is enacted. It’s also unclear if it would apply to mined or farmed products, but the idea has already caused anxiety in the oil and food industries." As any border tax is still in a nascent stage, what form it might take is unclear. Bates explains some of the options, such as the “border adjustability” provision that would refund to exporters the taxes they have paid on goods shipped overseas, but he points out that no one really knows at this stage.
Still, groups like the National Retail Federation (NRF) are worried "that the costs from any border taxes will ultimately be passed on to the consumers." Bates cites from the NRF article: "[The tax] would give some retailers tax costs three to five times larger than previous profit margins and would dramatically drive up the price of imported merchandise. Even retailers that do not import directly would see higher costs since wholesalers would likely pass along the increase. The vast majority of the imported items affected are not manufactured in the United States, so there would be no opportunity to substitute American-made inventory." Will it stimulate domestic manufacturing or incite a trade war? Will it only apply to Mexico or be implemented more broadly? It is too early to say.
But as Bates concludes: "Needless to say, this issue could be of particular importance to jewelers, who sell many items made overseas as well as a high-value product where a few extra percentage points can make a difference. One could see companies that do manufacture here, like Shinola or Alex and Ani, ending up ahead. (Though Shinola does use imported parts.) But any broad increase on levies on imported items could hurt demand for items like Swiss watches, Chinese- and Indian-made jewelry, and anything that comes out of the ground, like diamonds and gemstones."