Tuesday, 24 November 2020

How Trump’s Proposed $200 Billion China Tariffs Could Affect You

How Trump’s Proposed $200 Billion China Tariffs Could Affect You
22 Aug
12:49

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Americans may feel a sting in their daily lives from the next swath of tariffs that President Donald Trump threatens to slap on $200 billion worth of Chinese-made products.

Trump’s initial tariffs on $50 billion worth of Chinese imports steered clear of popular consumer products. But as he looks to put a 25% tax on an additional $200 billion of China-made imports, it’s almost inevitable that U.S. consumers would see price hikes on items as varied as fish, baseball gloves, vacuum cleaners, computers, luggage, tires, dog leashes, furniture, lamps and mattresses.

Last year, the U.S. imported $505 billion of goods from China, meaning this next round of tariffs would account for nearly 40% of Chinese imports.

Almost 23% of the targeted items on Trump’s $200 billion list are consumer products, according to an analysis conducted by the Peterson Institute for International Economics (PIIE), a nonprofit, nonpartisan economics research institution in Washington, D.C. For comparison, consumer products made up just 1% of the list of the initial $50 billion worth of made-in-China imports subject to added tariffs.

“I mean, when you get to $200 billion, you’re covering most everything,” said William Reinsch, Scholl Chair in international business at the Center for Strategic and International Studies, a bipartisan, nonprofit policy research organization based in Washington, D.C. Reinsch previously served as the president of the National Foreign Trade Council.

The new tariffs may take effect after public hearings are held, which end on Aug. 30. A hearing is scheduled from Aug. 20-23 at the U.S. International Trade Commission at 500 E Street SW, Washington D.C., beginning at 9:30 a.m.

Where would consumers be hit mostly?

Based on the import value in 2017, the PIIE analysts found the major consumer products targeted are:

  • furniture ($11 billion);
  • seats ($10 billion);
  • computers ($8 billion);
  • lamps, lighting and parts ($7 billion);
  • travel bags ($7 billion); and
  • agricultural and food products ($6 billion).

Affected household goods are:

  • cooking appliances ($3.8 billion);
  • vacuum cleaners ($1.8 billion); and
  • refrigerators ($1 billion).

To break down the list further:

Dozens of fish are on the hook for price increases. That includes tilapia, salmon, cod and trout. When you eat out, your restaurant bill may also go up if you order seafood like tuna, squid and octopus that come from China.

If you like to cook with typical Chinese food ingredients, you may find higher prices on lychees, sea urchins, garlic, bamboo shoots, dried mushrooms and monosodium glutamate (better known as MSG), which are on Trump’s list.

As you browse the aisles at your nearest big-box store, you may find household supplies with higher prices including toilet paper, facial tissue, paper towels and napkins, as well as dishes, plates and cups made of paper or paperboard.

Clothes and accessories made of leather or furskin, including belts, gloves and mittens may cost more. Also on Trump’s list: bed sheets, linens and towels.

And if you live in one of the more than 84 million U.S. households with a pet, take note: Prices of dog leashes, collars, muzzles, harnesses and dog and cat food may swing up, too.

You can check out the full list of more than 6,000 Chinese items subjected to tariffs here.

How would consumers be hurt?

Immediate impact

Some effects are immediate. On the one hand, tariffs would raise the prices of the made-in-China products that Americans buy in stores, but on the other, domestic producers may jack up the prices of their products, too.

“Usually what happens is that when the domestics discover that their competitions’ prices are going up, they’re tempted to raise their prices to take advantage of the situation,” Reinsch said. “They won’t raise it as high as the foreigners have to raise it, because after all, as long as they’re a little bit cheaper, they have an edge.”

In that sense, the consumer wouldn’t gain much if they switch from a Chinese product to the American-made version.

Reinsch estimated that consumers can see the effects rolling out between three and six months after the tariffs are imposed.

How much would prices go up?

It’s hard to predict whether American importers would ease the tariffs by paying themselves or pass part of or even the full cost onto their customers — it depends on the industry, alternative import sources and market conditions. As a result, consumers may not have to bear the full 25% tariff on every Chinese product, if it was to be imposed, experts say.

“Generally speaking, the more expensive the item, the more likely that the manufacturer or importer is to swallow a part of the tariff,” Reinsch said. “Otherwise, the cost will be pretty significant.”

Economists estimate that on average, about half of that unfavorable tax hike — 12.5% to 15%— would be passed on to customers, and the rest absorbed by the producer or manufacturer.

Shoppers who looked for washing machines this year may have already understood how tariffs affect consumer product prices. The price of imported washing machines shot up 16.4% three months after the Trump administration imposed 20%-50% tariffs in February, according to the American Enterprise Institute, a Washington, D.C.-based conservative think tank.

Indirect impact

Other effects are likely to emerge slowly, as 47% of the $200 billion tariff list comprises tens of billions of dollars of intermediate inputs — parts and components of final products — imported from China. Even though consumers don’t buy such things directly, they end up being incorporated or assembled into something else, and the additional costs will feed into the final products.

U.S. importers or producers may not be able to switch quickly to alternative suppliers in other countries, so American companies may have to pay the higher price for the parts and probably pass that cost onto consumers, said Gary Hufbauer, economist and nonresident senior fellow at the PIIE.

But even if American companies alter their supply chain and find a vendor that makes the same thing with comparable quality, the products probably won’t be as cheap as the Chinese parts used to be.

“If it was cheaper than the Chinese product, you would have found it a year ago, and you’d already be there,” Reinsch said. “So, it’s pretty certain that if plan A, which is China, suddenly becomes more expensive, it’s pretty certain that your plan B will also be more expensive — not as expensive as the tariffs but more than you were paying before.”

Either way, the consumers are going to lose, either from immediate price hikes or when the impact of the tariffs is sprinkled into the supply chain of a product that in part relies on Chinese components.

“[The tariffs] will all find their way finally to consumer prices,” Hufbauer said.

Take consumer technology products as an example.

A recent study by the Consumer Technology Association estimated that a 25% tariff on Chinese printed circuit assemblies and connected devices — an input into the production of a host of consumer technology products such as fitness activity trackers, wireless headphones, modems, routers, smartwatches and other Bluetooth-enabled devices — would lead to an average retail price hike of 6.2% on the final products.

Trade talks

In the lead-up to the new tariffs, the U.S. and China are scheduled to be back at the negotiating table in late August to ease trade tensions that have been built up in the past few months between the world’s two biggest economies. Experts interviewed by MagnifyMoney said the meeting would not likely affect the already-announced tariffs due to the tight negotiation window and a large number of issues dividing the two nations.

At best, the administration would delay the implementation of tariffs, and impose the tariffs in stages — perhaps at different rates for each stage, said Hufbauer.

In any case, it’s likely that over the time, individual Americans would feel the effect of higher tariffs when they check out at the country’s largest retailers.

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Shen Lu

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