Harris, Trump Election Impact on Consumer

intersection of business policy and law. The forthcoming Conversation is part of the Bloomberg Intelligence Election series, covering the industry and company impacts of the upcoming election. On October twenty second, Holifrom and Punam Goyle discuss what the election might mean for the US consumer sector. If you have any questions, please feel free to reach out to any of us on the Bloomberg terminal. Good morning, everyone will get started.

Welcome and thank you for joining this webinar. We're my colleague gol. I will discuss implications of the next election on consumer companies. My name is Holly from I'm a litigation analyst. A few quick administrative notes. This presentation will be recorded and available for playback. Questions will be taken at the end of the call, and you can ask questions by submitting them in the Q and A box. Feel free to reach out to any of us directly

after the webinar if the question is not answered. And just a quick word about Bloomberg Intelligence. We are the investment research platform on the Bloomberg terminal, providing in depth research on industries, companies, and markets and delivering key data from bi analysts in their given industry. So the outcome of the US presidential election could have important implications for consumer companies, including apparel companies, auto manufacturers, and grocery chains.

President Trump and Vice President Harris have somewhat different views about the applications of tariffs, which could have multi billion dollar implications. The other area of the campaigns seem to be focusing on is grocery prices. So I will start with tariffs, and then I'll talk about potential price gouting bills in a Harris administration, and then I'll pass it over to my colleague, senior US retail analyst Punum Gooyle, who will talk more about potential business implications of terrafs.

So tariffs have become a focal point of the campaign. We think tariffs are likely under either Harris or Trump, given precedent and what the candidates have been saying on the campaign trail, but we think tariffs will be far more far reaching under a Trump presidency. So what are

the proposals? Trump has said he would impose ten to twenty percent across the board tariffs on imports into the US and sixty percent on those from China, and in fact, recently he has threatened to increase terrists by as much as one hundred percent on Chinese goods and two hundred percent on Chinese electric vehicles. The sixty percent tariffs on goods from China put impact apparel companies like Nike and Adidas, which, according to the estimates source, eighteen and fourteen percent of

their footwear from China. Automakers like Pulster and Vovo could also be impacted since some of their evs are made in China, and companies like Mulu, Lemon and Alberts may also be affected by the proposal of ten to twenty percent across the boer tariffs on imports given they largely

make products in Vietnam. So Harris has criticized Trump's plan, saying it would cost the average household thousands of dollars a year and increased costs, with some estimating the poor household costs could be around twenty six hundred a year. But we said targeted tariffs are likely under Harris too, and we think that because of the following so. When Trump was in office, he imposed tariffs on hundreds of billions of dollars worth of goods from China, including many

on steel and aluminum. The Biden administration kept many of those tariffs and even increased some, and recently the Biden administration pleaded pledged terariffs ranging from seven point five to one hundred percent on solar sales, evs, syringes, steel, and other goods from China. We doubt Harris is going to depart from the Biden administration's tariffs, so we see tariffs

continuing under either president. The other thing Biden has said he intends to do is eliminate a deminimus exemption for goods that cost under age hundred dollars if anyone is wondering what that dominimus exemption is. By statute, the Treasury Secretary can prescribe an exemption from terrorists for goods that cost less than eight hundred dollars. Packages under the limit

enter terror free if they're addressed to individual residences. According to Reuters, about one billion goods qualified for this exemption last year. Excuse me n Reuters reported in September that the Biden administration is trying to tackle this loophole that's been created and used by online Chinese companies that ship direct to consumer. I've been asked whether Biden has the power to eliminate the diminist exemption, and I think he does,

and then a judicial challenge would fail. And that's because under the same law that grants the Treasury Secretary the right to exempt a DIMINISHNUS good from the terrorists, the Treasury Secretary also was given the power to make an exception to the exemption when needed to protect revenue or to protect against unlawful imports. The statute is pretty clear, and for that reason, we don't think a legal challenge

of pose would succeed. And though the terraffs that Trump proposes are probably broader than any other president before him, I think his terrorists would also survive potential judicial challenges. The reason why I think so is because Congress has delegated substantial authority to the President to impose harris via various statutes, and courts that have presided over challenges generally

have sided with the President and read the statutes very broadly. So. For example, Section three oh one of the Trade Act, also known as Relief from Unfair Trade Practices Act, allows the US to impose trade sanctions on foreign countries that violate US trade agreements or unreasonably burning US commerce. Basically, the lawgerans the Office of the US Trade Representative power to investigate and take actions to enforce US rights under

trade agreements. During his administration twenty eighteen, Trump used that section to justify terraffs on Chinese goods after the Trade Representative concluded that China was engaging in unfair trade practices with respect to in US intellectual property. Similarly, Section two thirty two of the Trade Expansion Act, another law, gives the President discussion to investigate and then impose trade restrictions

on certain products found to threaten national security. This one has been used to justify tariffs on steel and aluminum, for example. Also of the International Emergency Economic Powers Act gives the president power to restrict international trade on national securities grounds to advance US economic interests. To use this power, the president has to declare a national emergency, but the

president has brought authority to do that. So, for example, in May twenty and eighteen, Trump announced his intention to use the statue to impose a five percent tariff on all goods from Mexico to take effect the next month until quote the illegal migration crisis is alleviated. And finally, under section three thirty nine of the Teriff Act, the President can impost terraces of up to fifty percent and

imports from countries discriminating against US commerce. So, as I said, courts have given presidents a lot of difference when it comes to trade actions, and challenges for the most part,

have failed. So for example, the Federal Circuit, which is the appeals court that handles appeals from the International Trade Court, upheld the Trump administration Section two thirty two terroriffs on steel imports and then affirm the International Trade Court's determination that that section did not violate the constitution separation of powers. The Appellate court explicitly said that courts have a very limited role in reviewing the president's trade actions that are discretionary.

It will only find conduct umlawful if it involves a clear misconstruction the statute or significant procedural violation. So the delegation of power from Congress is very broad, So can Congress limit that terrort authority. Congress can try to limit these statutes by enacting another law, but they need a two thirds majority to overrule a presidential veto which neither party is likely to get in the next election. So for that reason, we think terrists are likely in our

both administrations. They are unlikely to be curved by either the judicial or legislative branch. Turning now to price gouging. Vice President Kamala Harris has made reducing grocery prices a focal point of her campaign. She mentioned it in her Economic Address in August and during the presidential debate in September. So currently there's no federal price gouging laws. States have them,

which have been successful to varying degrees. But we think Harris may propose federal legislation that lifts from a senateville Massachusetts Senator Elizabeth Warren proposed in twenty twenty four, so what a Senator learned bill due The bill would make it unlawful to charge a quote grossly excessive price for products apart from certain exceptions, including the seller's increased costs, or were the seller's annual gross income is less than

one hundred million dollars. The bill declares a presumptive violation during a market shock like a global health emergency, where there's unfair market leverage, or would the seller increase the price over the average price for which sold the good one hundred and twenty days preceding the market shock. If there's a violation, the bill imposes penalties of as much as five percent of annual revenue if the seller that

committed the violation has quote unfair leverage. An unfair leverage may be found where the seller earned at least one billion dollars in gross revenue in the US during the twelve month period preceding the sale, or aware, for example, the seller discriminies between equal trading partners, engages in unfair deceptive practices, or has a dominant position in commerce. If a similar bill is reintroduced during a Harris presidency in past,

we think grocery retailers could be impacted. Albertson Kroger by way of example, Currently I have profit margins of one point four to two point one percent. For example, selling prices fall short of the rise in their costs by three percent according to the Bureau of Economic Analysis, so that legislation could be very impactful if the violation is found.

But we give Senator Warren's bill a thirty percent chance of passing this year because it hasn't made it out of Senate committees, and we give the bill the same chance of passing if Harris wins the presidency because Democrats

are unlikely to secure a filibus recruit majority in the Senate. Also, if it is passed in its current form, we think of potential judicial challenge on grounds as void for vagueness would be successful because the bill allows the Federal Trade Commission to define quote grossly excessive price using any metric it deems appropriate. So arguably the statue gives inadequate notice

to potential violators. But unless such a pricing price gouging bill is passed, the USFDC lacks power to address product pricing unless deceptive marketing or unfair competition exists, so we don't think a bill is likely to pass, though the companies still continue to face this risk. So with that I'll turn over to my colleague Puno to talk more on tariffs.

tariff increases that could come up over the next year. Now, the interesting thing is that right now tariffs are largely placed on Chinese imports, and over the last five years or longer, there has been an intent to diversify exposure to Chinese manufacturing by retailers and brands where they've actually started to shift their production into other Asian countries. So that's good news, which means that the exposure is less than it was the last time when Trump had administered tariffs.

But the bad news is under the Trump administration, as Holly mentioned earlier, he is also proposing that other countries are too similarly tariffed as they were in the last round ten to twenty percent. So in that case, regardless if that was to happen, regardless of where you have migrated, the exposure, the impact is still very similar to what it was the last round. So while it's nice to

see that, you know manufacturing has diversified. If in fact all Asian countries or most Asian countries are taxed and tariff such as India, Indonesia, Bangladesh, Vietnam, you know these are becoming to be large manufacturing hubs. Today we will have negative impact. Under our Harrison administration, the impact could be less because the magnitude of the increase is clearly lower. But that said, there is still a headwind in place. Now.

The biggest question is who's exposed. And Holly mentioned a few of the names, but just to put one thing into perspective, the US largely does not produce its own apparel and footwear, so the apparel and footwear industries do have a large exposure to manufacturing outside of the US. Could we bring manufacturing back to the US, Yes, but

it would take decades. We no longer have the scaled labor, we no longer have the manufacturing plans, and we just don't have the infrastructure to support manufacturing of apparel and footwear at the scale that it has moved abroad. So how much do we consume from China clearly a lot. We consume twenty four percent of apparel and thirty four percent of footwear from China alone. Now that has moderated from thirty one percent of footwear before and fifteen percent.

So I would say that, you know, when I think about the space, I think there is clearly a headwind and a bigger headwind in place from the Trump administration going into effect versus the Harris But nonetheless, retailers will be forced to take up prices. They will see a margin hit to the bottom line because there's it's unlikely that they could do a one to one increase passing along the entire cost to the consumer. So when we think about this and we think about who's exposed, I'm

going to go sector vice sector. At BI, we have various senior analysts that cover the consumer space, and many of us have written to the impact it has on each of the companies that we cover. You can find all this research on BI. But just to start with the apparel and footwear space. You know, when we think about the largest footwear manufacturer retailer, Nike comes to mind, and the company itself gets twenty nine percent of its footwear and twenty six percent of its apparel came from

China in twenty sixteen. Now they have moderated that exposure. It now gets eighteen percent of its footworth, so more than a ten percentage point decrease from before, and sixteen percent from apparel, and that's also about a ten percentage point decrease making strides, but nonetheless they're going to be exposed.

When you think about Adidas, the second largest footwear manufacturer, Adida sources from China alone in twenty twenty three fifteen percent of its apparel and fourteen percent of its footwear. That's also down. It was twenty nine percent for apparel in twenty fifteen and twenty three percent of footwear in twenty fifteen, So you know Adidas. The one nice thing that we see in Adidas is that they are now using and many of the footwear companies, they are using

what's produced in China for China. So companies have the ability, if additional tariffs were to be imposed, to take what's manufactured in China and distribute it to regions outside of the US. That way, they don't have to have terraffs and utilize the other regions to fulfill a lot of the demand for the US. A company that has not reduced tariffs in the footwear space, but rather sorry not

tariff's exposure has increased it is Puma. So Puma's exposure to China has gone from twenty six percent to thirty percent, and that's intentional because they want to fill local demand. They are making a much bigger push in the Asian countries, notably China, and they want to use inventory meat in

the region for the region. Now, companies in the at leisure space that don't have as big of an exposure are companies like lul Lemon, All Birds, and VF Corp. They don't have exposure to China, are very little exposure, and it's interesting to see the companies that don't because you know, as you're looking at who gets elected, you can kind of segregate the ones with more exposure versus the ones with little to no exposure. And they don't have exposure to China, but they do have exposure to

the other Asian countries. So we still have to remember that there is a possibility that they too would still be impacted should tariffs extend beyond China. Additional teriffs. Now, when you move over to the apparel space. The companies that are largely exposed to China manufacturing are companies like Oxford Industries, as my colleague highlights, forty one percent of its merchandise is from China in twenty twenty three. Aritzia,

another company, source thirty to thirty five percent. So both of these retailers are clearly more exposed should tariffs be increased next year. And now when we look at, you know, within apparel brands, who's less exposed. The companies that were

highlighted include Gap, Levi's, Victoria's Secret, and Abercrombie. They too have been shifting away from China since twenty eighteen, and Gap, for example, we estimate ATBI imported about ten percent or less from China, and that was also ten percentage points below what it did in twenty eighteen of about twenty one percent. Levi's, interestingly, just imports under one percent, and

that's down from eight percent five years ago. So you're starting to see the theme that companies have diversified, they are moving away from China. But I still want to remind everyone that if tariffs are imposed on other countries outside of China, the impact this round could be more pronounced than it was the last round, because not only do you have increasing tariffs from China, but you also

have tariffs being added to other Asian countries. So the combined impact is actually going to be bigger than it was the last round should both of those scenarios play out under the Trump administration. Ralph Lauren also said that they've brought down their exposure to a high single digit percentage point coming into the US from China, and that's

stands substantially from thirty three percent in twenty eighteen. Now when we move over into the hardline space or analyst highlights that ELF Beauty is probably the most exposed when I think across retail to China because eighty percent comes China alone. They beat Hasbro and Mattel, which is now fifty percent down from sixty to seventy percent prior. On the home hardline section, William Sinoma and our Ah are also exposed at twenty to twenty five percent, down also

about from thirty five to fifty percent prior. So you know, when you think about the space collectively, I would say the headwind is there under any situation, clearly greater under Trump presidency and even greater should tariffs be imposed to countries outside of China, because you know, we have this notion that many companies have diverse fight out of China, so the exposure is less and therefore the impact should

be less. But if Vietnam is going to be tariff, even if it's at ten percent, it's going to magnify. It's going to magnify the impact that retailers are going to face and margins will be hit greater. Our parel analyst estimates the basis to fifty basis point impact from additional terroriffs, but I think you know the impact could be much much higher should both situations play out where other countries are also text with that, I'll pass it back to Holly and thank you.