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Trump's escalating trade war with China could pound some struggling retailers into the ground

Brian Sozzi
Editor-at-Large

The last thing many of the nation’s most struggling retailers need is an escalation of the U.S.-China trade war, as suggested will happen next with China saying Friday it will impose $75 billion in new tariffs on the U.S. in two tranches (September 1 and December 15).

That’s especially so for retailers such as J.C. Penney (JCP), Macy’s (M) and the like — legacy companies saddled with way too much debt, little pricing power and too many stores in the age of digital shopping. These companies are ill-equipped to raise prices to compensate for the higher cost of their merchandise as a result of a full-blown tariff war.

With next to no pricing power and costs on the rise, investors will ratchet up their concerns on the sales and debt repayment outlooks for these household name brands.

“If you are a retail CEO of a poorly run, lower rated retailer and you get tariffs you are walking out on the front porch and looking for the locusts because what else could happen next to you,” said Moody’s Investors Service veteran retail strategist Charles O’Shea on Yahoo Finance’s The First Trade.

Retailers received a reprieve earlier this month as the Trump administration said it would delay another round of tariffs on Chinese imports, notably toys, video games and some clothing to December 15. The administration cited health, safety and national security concerns for its decision.

Consumers will start feeling the tariffs

But make no mistake, come December barring any further action the onslaught of tariffs on both sides of the pond could wallop retailers and consumers.

JPMorgan recently estimated that 25% tariffs on all Chinese could cost U.S. households $1,550 more per year.

Meanwhile, UBS has said 25% tariffs on all Chinese imports could trigger 11,000-plus store closures within the next year. Previously, UBS expected 21,000 store closures by 2026 just based on the shift to online shopping.

O’Shea says that out of all the retailers he tracks, Best Buy (BBY) and Walmart (WMT) are probably best positioned to weather the tariff storm. Each retailer is cash rich and are using their vast store networks to maximize sales and profits, mostly by offering various delivery services.

Brian Sozzi is an editor-at-large and co-host of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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