(Bloomberg)—America’s retailers are reeling following months of weak sales, and while they began limping back in September as malls prepare for the crucial holiday rush, a new worry is setting in. Donald Trump.
Following his victory in the U.S. presidential election, the sector is entering a period of widespread uncertainty as it nervously waits to see which of his policies–especially his more extreme ones–will actually become law.
“There’s almost no visibility into what, practically, will be enacted by Congress” once Trump is sworn in, said Bridget Weishaar, a retail analyst at Morningstar Inc. “Any retailer has to be in the game for the long term.”
What’s clear is that if his proposals restricting immigration and trade are implemented, it could have a profound impact on the retail segment of the U.S. economy, according to a recent 65-page report from Morgan Stanley. Analysts and economists studied both the effects on American consumers and the companies that serve them, from fast food to casinos. They concluded that if Trump’s proposals are enacted—even with individual tax cuts—they would likely do significant damage on both sides of the cash register.
“Elevated economic policy uncertainty, as well as a possible deportation-linked decline in consumer demand and labor under a Trump presidency would counteract the consumer spending benefit from lower taxes,” according to Morgan Stanley U.S. consumer economist Paula Campbell Roberts.
Relief could come with Trump’s business tax reform agenda. He proposed a 15 percent corporate tax cap, which could boost income at domestic-oriented companies with high effective tax rates. Many consumer-focused companies, such as Home Depot Inc. and TJX Cos., fall within this category, and they would benefit greatly. Reported profits would jump by around 30 percent, Morgan Stanley said.
But much of this perk could be offset by Trump’s immigration policies, as mass deportations would present a “significant risk” for retailers, the analysts wrote. Though Trump has been unclear whether he supports the deportation of all illegal immigrants, or just those convicted of crimes, the removal of a large chunk of population would cut into the number of customers and employees. Shops and restaurants that are most exposed to the Hispanic population, with many locations in California and Texas, would take the heaviest hit.
The analysts found that Trump’s stances on global trade agreements may send a shock wave through retail supply chains. His opposition to the Trans-Pacific Partnership and threats to pull out of the North American Free Trade Agreement, along with his warnings to China about punitive tariffs on imports, could put added stress on retailers that bring in products from abroad. Any heightened barriers will raise costs for all sorts of stores, from apparel sellers to auto parts shops.
Trump’s aggressiveness toward China has the analysts scared the most, as a trade war may end up costing American consumers billions of dollars. For instance, a 35 percent tariff on Chinese tires would cost consumers $1.1 billion while saving only 1,200 U.S. jobs, a study by the Peterson Institute for International Economics found.
“The increased costs would likely be passed on to American consumers in the form of higher retail prices,” the analysts wrote.
The National Retail Federation, an industry trade organization, pledged to work with the new administration and Republican-controlled Congress, pushing for tax reform and infrastructure investment. Still, there was a cautious tone to the statement by the group’s president, Matthew Shay.
“As President Trump begins staffing his administration, we are hopeful that pragmatism will prevail over ideology so that all branches of government can work together for the benefit of retailers, their associates, the consumers they serve and the communities where they live and work,” he said.
© 2016 Bloomberg L.P