As tariff tiffs ratchet up between the United States and its key trading partners, especially China, economists are warning of the potential for a full-blown trade war and global economic crisis — and everyone from American manufacturers to farmers are increasingly on edge about what the future holds. But consumers ought to worry, too.
President Trump announced Monday he would press ahead with tariffs on another $200 billion worth of Chinese imports, on top of $50 billion already taxed earlier this year — meaning nearly half of all goods imported from China will be subject to trade duties. This new wave of tariffs will start at 10 percent on Sept. 24, before climbing to 25 percent at year’s end. Experts expect China will take retaliatory action on American exports, though Trump threatened to slap tariffs on another $267 billion in Chinese goods in response.
What does this escalation mean for you? By many accounts, a heightened trade war would not only increase costs for U.S. businesses, it would also hurt the average American consumer by way of increased prices and even jobs losses.
The Many Impacts of a Trade War
A trade war would impact Americans in a number of ways. Perhaps the most obvious is that U.S. tariffs on goods from other countries increase the prices of products we import from that country.
But those aren’t the only price hikes you can expect. “There’s also an incentive for domestic producers to raise their prices to a level just under the adjusted tariff amount,” explained Mark Harvey, director of graduate programs at University of Saint Mary, where he teaches international political economy and global management. “So, costs of goods tend to increase whether they’re domestic or foreign made.”
In addition, anything in the supply chain that’s hit with a tariff will result in prices being nudged upward. “So, if we put tariffs on steel or aluminum, any product with steel or aluminum increases in cost,” continued Harvey.
One reason countries raise tariffs on imports is to make goods produced at home more price-competitive with those made elsewhere, to try and boost domestic manufacturing and in turn create more manufacturing jobs.
But even if the tariffs are ultimately successful, resulting in the relocation of production away from an overseas facility where labor is cheap and back to the United States, the cost of production will increase and still hit consumers hard.
“There’s a reason companies relocated — to save money by taking advantage of cheaper resources, labor, or to tighten up a supply chain,” Harvey said. “If tariffs increase the costs so substantially that these businesses permanently come home, it more permanently raises the costs of production.”
Ryan McMunn, CEO of U.S.-based Tricam Industries, has been watching the heated trade war rhetoric with growing concern. McMunn, who as president of the company’s China operations helped grow Tricam into one of the largest manufacturers of ladders in this country, suggests consumers should be worried as well.
“The trade war will affect manufacturers of almost every product imaginable and, in the end, the American consumer,” said McMunn. “Manufacturers already run on razor thin margins. They cannot possibly absorb the tariffs, nor can the retailers. So, unfortunately, the cost increase will most likely be passed on to the American public.”
To be clear, however, it’s not just consumers and the prices of consumer goods that will feel the pinch. McMunn says that, in the end, a trade war will result in lower sales for businesses — including his own, when the costs of ladders and garden carts go up. The average American consumer is not necessarily going to be able to afford the higher prices.
And already, American farmers are paying the price, said McMunn. China has retaliated with tariffs of its own on some U.S. agricultural exports such as soybeans, which has hurt farmers from Colorado to Nebraska to Idaho and prompted President Trump to issue $12 billion in emergency aid to farmers hurt by the tariffs.
“It’s making it harder for our farmers to sell in China. They are basically shutting off imports of soybeans in China, which definitely did not help the American farmer,” McMunn said.
Then Why Raise Tariffs?
Not all economists and political experts are critical of Trump’s expanding tariffs. Some believe the president’s tough stance, after years of the U.S. liberalizing trade far more than our partners, is the correct approach.
“Raising tariffs is a tool that the United States is using to get parties to the table, and to pressure them using this leverage to agree to better terms for the U.S.,” said Juscelino Colares, professor of business law and political science at Case Western Reserve University School of Law, who is largely supportive of the president’s efforts.
“The reason the U.S. needed to do this is because our tariffs were much closer to zero then those of our trading partners,” Colares said. “We had very little to give and, after numerous trade deals and two-and-a-half decades of WTO and NAFTA, our counter-parties were not reducing tariffs and other barriers while we kept a very open market and continued liberalizing.”
Like others, Colares believes the tariffs may lead to increased prices on certain goods in the short term. But if Trump’s effort to create a more level playing field is ultimately successful, Colares expects the tariffs will no longer be necessary.
“Once we reach deals and get other countries to reduce their tariffs, then we will stop using these extra tariffs as inducers to negotiation, and we go to a new normal with lower barriers for our exports,” Colares explained.
What Products and Prices Will Be Impacted?
In July, the Trump administration released a more than 200-page document detailing hundreds of Chinese goods that would be subject to 10 percent tariffs — now set to take effect next week and increase to 25 percent by the end of 2018. McMunn received an email from the government with the document and was shocked. “It was unbelievable the number of products and the specificity it goes into. It’s surreal,” he recalled.
The exhaustive document covers everything from fish imports to printer ink to shampoo. Also on the list are dozens of rubber-based products, from bike tires to transmission belts, plus handbags, luggage, leather, skis, and gloves ranging from baseball mitts to wool mittens — all of which are just a tiny sample of the thousands of items targeted (though roughly 300 items, including high chairs and bike helmets, have been removed).
Earlier Trump administration tariffs imposed on steel, aluminum, and Canadian lumber have already sent construction costs soaring; the tariffs on lumber alone can add close to $10,000 to the cost of a new home. The new tariffs on Chinese goods add to that list dozens of construction materials, from wood products to plaster to stones used in homebuilding and landscaping, such as granite, slate, sandstone, and marble. And the price of laundry equipment leaped nearly 20% in the months after president Trump first put tariffs on imported washers.
How Can Consumers Respond?
There’s no easy or simple way to avoid the impacts of a trade war. At most, consumers can be more selective about the products they buy and perhaps try to avoid those coming from countries impacted by tariffs.
“The latest round of tariffs are aimed at China, so one way to avoid higher priced goods would be buy items sourced from countries other than China,” said David Spooner, partner in the corporate department and co-chair of the international trade practice group at the Washington, D.C., office of Barnes & Thornburg.
Spooner, who represents governments, trade associations, and corporate clients on international trade matters, said that while it may be beyond the ability of the average consumer, it’s possible to look for substitutes for certain types of products. “For instance, certain types of rubber raincoats are affected by the tariffs, but only certain types,” he said.
Another option for consumers hoping to avoid the impact of a trade war is to shop now for any items on that mega-list that you may need — before the tariffs start to take effect. Or set aside money to deal with the possibility of inflation; interest rates are rising, at least, with most online savings accounts now yielding close to 2% or better.
McMunn also suggests writing to political representatives in Washington, D.C., to express concern about the tariffs.
“What we’re doing as a business is sending letters to our congressmen and senators. We have a warehouse in 12 states and we’re emailing our representatives in all of them,” said McMunn. “Our customers are doing the exact same thing, writing their congressmen and senators. Individual citizens could do that as well – pick up a pen and paper, that makes a bigger impact then just sending an email.”
Temporary Tactic or Long-Term Trade War?
Few experts can predict where this escalating trade war is ultimately headed and when, or how, it will end. For his part, Harvey suggests nothing good is likely to come of tariffs, particularly for the average American worker and consumer.
“I doubt these tariffs will cause many jobs to return to the U.S. that will benefit blue-collar workers,” Harvey said. “Profits, on balance, will decline. Unemployment will likely increase. The economy will slow down. Prices will probably go up. None of this will be particularly good for the average blue-collar worker.”
McMunn agreed, saying, “This isn’t doing anybody any favors. This isn’t bringing any jobs back to the U.S.” However, he was hopeful that, as Colares and other backers of the president have suggested, the tariffs are merely a temporary negotiation tactic. “There are meetings happening between the U.S. and China, so maybe this was just a shot across the bow and they’ll come to an agreement.”
President Trump tweeted as much Monday, saying, “Tariffs have put the U.S. in a very strong bargaining position” ahead of upcoming trade talks.
Still, McMunn questioned whether such a strategy is worth the pain of higher prices for consumers and companies. While he acknowledged that there were certainly trade imbalances that needed to be corrected in America’s favor, McMunn doesn’t believe the current approach is the best way to achieve that objective. “Even if this is just a tactic that Trump is using for negotiation purposes, it’s not a good one — it’s scaring everyone in manufacturing,” he said.
Mia Taylor is an award-winning journalist with more than two decades of experience. She has worked for some of the nation’s best-known news organizations, including the Atlanta Journal-Constitution and the San Diego Union-Tribune.
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The post Now in Stock, Sticker Shock: How a Trade War Could Impact Your Budget appeared first on The Simple Dollar.
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