How steeper U.S. tariffs on China could affect consumers and businesses

By Rachel Layne

/ MoneyWatch

How will the tariff increase impact Americans?

The Trump administration's move Friday to ratchet up a year-long trade war with China risks stifling economic growth as American consumers pay more at the register, farmers cope with a shrinking export market and business sentiment wanes, experts warned.

"President Trump's move to impose new U.S. tariffs on China and escalate the U.S.-China trade war threatens to derail an emerging recovery in business confidence," economists at Oxford Economics said in a note to investors.

More than half of all imported goods from China, the U.S.'s biggest trading partner last year, are now subject to tariffs imposed by the White House. Tariffs are paid by domestic companies, and when such levies increase the higher costs are often passed on to consumers in the form of higher prices.

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Oxford Economics estimates that Friday's tariff hike will cut U.S. economic output by $62 billion by next year, or 0.3 percent of gross domestic product. If tariffs are eventually imposed on all products the U.S. buys from China, as Mr. Trump has threatened, American GDP would fall 0.5 percent by 2020, according to the investment research firm. That amounts to $625 billion in lost economic activity.

Tariffs imposed by the Mr. Trump over the last year, including the latest round, could cost an average family of four around $767 a year, one study from advocacy group Trade Partnership estimated in February. The group also forecast that U.S. employment could decline.

"We're freaked"

"It's official, we're freaked," the American Apparel & Footwear Association said in a statement after the U.S. hiked tariffs from 10 percent to 25 percent on $200 billion in Chinese imports.

China vows to retaliate against tariff hike with sanctions on U.S. goods

"As an Industry, we cannot survive a 25 percent tariff on top of the tariffs that we already pay," Rick Helfenbein, who heads the trade group, said in the statement. "Prices at retail will rise, sales will drop and jobs will be lost. From an administration that promised jobs, jobs, jobs, this is a Cinderella tale that has gone awry. It offers no glass slipper and no way out for years to come."

For a number of reasons, it can be hard to measure the impact of higher tariffs on consumers prices. That's in part because some companies opt to cut costs to absorb the higher tariffs, rather than pass the levies on to consumers.

Take luggage. With most luggage makers now based in China, it's difficult for retailers to get supplies anyplace else even as their import costs rise.

"So really, for us, it basically means 85 percent of what's currently in our store is impacted by the tariff because it's all luggage, all briefcases, all backpacks and most travel accessories," said Tiffany Zarfas Williams, owner of the Luggage Shop in Lubbock, Texas, and a National Retail Federation board member in a call this week arranged by trade groups to rally against Mr. Trump's tariffs.

Suppliers have already told Zarfas Williams they will pass on the added cost to her, likely resulting in higher prices for customers in the U.S. she said.

Hit to confidence

Heightened trade tensions between the U.S. and China, including higher tariffs, "will weaken consumer and business confidence in the context of an already slowing global economy," Elena Duggar, an assistant director at Moody's Investors Service, said in a statement.

Construction, transportation, telecommunications, machinery manufacturing, and computers and electronics companies will feel the greatest impact from the tariff hike, according to Moody's.

President Trump also renewed his threat to raise tariffs on an additional $325 billion in Chinese imports — effectively all the products the U.S. buys from China. That would likely nudge up prices for things like phones and other electronics, as well as apparel.

If that happens, all the tariffs imposed by Mr. Trump, combined with retaliatory measures from other countries, would cost that same family of four $2,300 and the broader economy as many as 2.1 million jobs, the Trade Partnership predicted.

Impact on farmers

The U.S. is already dispensing $12 billion in subsidies to help farmers affected by retaliatory measures last year, including lost access to China's market for agricultural products including soybeans and corn.

China's move to shun U.S. soybean exports, and an ensuing decline in the global price of soybeans and grains like corn, is shifting demand away from the U.S., Brent Bible, a soybean farmer from Lafayette, Indiana, told reporters in a call on Thursday.

"Normally, our competitive advantage has been that we are a reliable source of product, and this has taken that that away," Bible said.

Mr. Trump said in a tweet Friday that the U.S. would buy agricultural products "in larger amounts than China ever did and ship it to poor & starving countries in the form of humanitarian assistance."

Glimmer of hope?

The U.S. Customs and Border Protection agency will only begin collecting the increased 25 percent tariff on goods that leave China starting Friday. That means items already shipped this week aren't yet subject to the increases. That might give U.S. and Chinese officials time to defuse the conflict and come to an agreement, Height Securities analysts said Friday.

"This delay means that the majority of tariffs will not be collected for roughly two weeks at minimum, as goods shipped before the tariff hike make their way across the Pacific," they wrote in a report. "This additional time seems tailor-made to offer a timeline for both sides to negotiate a de-escalation and continue talks toward a larger deal."

First published on May 10, 2019 / 3:01 PM

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