By Canadian Press

How Trump’s latest China tariffs could squeeze US consumers

Aug 2, 2019 | 12:45 PM

WASHINGTON — The latest batch of tariffs that President Donald Trump plans to impose on Chinese goods would likely cost U.S. households an average of $200 a year, some economists have estimated.

That would come on top of the roughly $831 imposed per household from Trump’s existing tariffs, according to a New York Federal Reserve analysis.

Trump plans to tax $300 billion of Chinese imports at 10% starting in September with the goal of accelerating trade talks with Beijing to favour the United States. The new tariffs would be in addition to 25% tariffs Trump has imposed on $250 billion in Chinese products. Those are mostly industrial goods. By contrast, the new tariffs would target products used by American consumers such as shoes, clothing and cellphones.

By Friday, Trump’s new planned tariffs had triggered worries, especially among retailers, about the consequences. Retail stores, many of which have been struggling, would have to make the painful choice of either absorbing the higher costs from the new tariffs or imposing them on price-conscious customers.

Additionally, China has signalled the likelihood of imposing counter-tariffs on U.S. goods, which would hurt American exporters. The stock market sold off sharply on Friday, in part over concerns about the effect on corporate profits.

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Some economists have estimated that Trump’s additional tariffs would cost an average U.S. household $200 a year. For retailers already feeling pressure, the higher prices would hit hard as the critically important holiday shopping season is getting underway.

Some companies are considering moving up their delivery of goods before the new tariffs take effect. Isaac Larian, CEO of Los Angeles-based MGA Entertainment, which makes the popular L.O.L. doll, said the company will be accelerating shipments from China to the U.S. ahead of the Sept. 1 deadline — and will pay an extra $300 to $400 more per shipping container to do so.

He envisions having to raise prices 10 per cent across his entire toy line.

“A lot of consumers can’t afford it, and demand will go down,” Larian said.

Peter Bragdon, executive vice-president at Columbia Sportswear, said the company had been diversifying away from China and now makes products in more than 20 countries. He said he thinks companies such as Columbia Sportswear will fare better than the smaller outdoor rivals.

“The larger companies that have the experience are going to be able to weather really bad public policy,” he said.

Washington and Beijing are locked in a battle over complaints that China steals or pressures companies to hand over technology. The Trump administration worries that American industrial leadership might be threatened by Chinese plans for government-led creation of global competitors in robotics and other technologies. Europe and Japan echo U.S. complaints that those plans violate Beijing’s market-opening commitments.

Companies were already shifting to suppliers outside of China in countries such as Vietnam to avoid the existing tariffs on $250 billion worth of Chinese imports. But plenty of clothing and footwear companies are still vulnerable as importing for holiday sales is starting — and the president’s announcement means that all Chinese imports might be taxed.

In 2018, 42% of all U.S. sold apparel was made in China, according to the American Apparel & Footwear Association, a trade group. That number is 69% for footwear.

“This creates a cash crunch, a lot of confusion and uncertainty,” said Steve Lamar, executive vice-president of the trade group. “It couldn’t come at a worse time.”

The Trump administration has publicly denied that consumers would be significantly harmed by the tariffs.

“Any consumer impact is very, very small,” Larry Kudlow, director of the National Economic Council, told reporters Friday.

The tariffs taken together would more than wipe out the savings a middle-class household received from Trump’s 2017 income tax cuts. The average tax filer earning between $50,000 and $75,000 paid $841 less in taxes last year, according to Congress’ Joint Committee on Taxation.

Many economists forecast that the proposed tariffs would shave about 0.1% off economic growth but that the real risk is a further escalation and side effects that could be devastating.

Douglas Porter, chief economist at BMO Capital Markets, compared the president’s moves to the errors that ultimately led to the terrifyingly destructive World War I.

He said of World War I, “Leaders were relentlessly overconfident on the prospects of victory, fully convinced that any war would be brief, incompetent in planning and execution, and miscalculated economic damage. Accordingly, the war dragged on for over four years at terrible, terrible costs. See any parallels?”

In answer to his own question, Porter noted that Trump has declared trade wars are “good” and “easy to win.”

On Friday, China threatened retaliation in ways that could magnify the potential damage to both of the world’s two biggest economies. Stocks fell around the globe as investors adjusted to these risks.

China’s government accused Trump of violating his June agreement with President Xi Jinping to revive negotiations aimed at ending a costly fight over Beijing’s trade surplus and technology ambitions.

China’s new U.N. Ambassador Zhang Jun suggested that the new tariffs could halt negotiations that were expected next month.

“China’s position is very clear that if the United States wishes to talk, then we will talk,” Zhang said. “If they want to fight, then we will fight.”

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D’Innocenzio contributed reporting from New York. McDonald contributed reporting from Beijing. AP writer Edith M. Lederer contributed from New York.

Josh Boak, Anne D’Innocenzio And Joe McDonald, The Associated Press