AP Explains: New China tariffs likely to hit US consumers
WASHINGTON (AP) — With the Trump administration more than doubling tariffs on billions of dollars of Chinese imports, will Americans soon see higher prices on store shelves?
Yes, but it may take a few weeks. U.S. import taxes on $200 billion of Chinese goods jumped to 25% on Friday, from 10%, as President Trump followed through on his threat to hike duties after he accused Chinese negotiators of backtracking on previous concessions they had made in ongoing trade talks .
The tariff hikes will impact thousands of items , including consumer goods like furniture, luggage, seafood and handbags. Businesses will pay more for chemicals, telecom equipment, and plastics. And car companies will pay more for auto parts, potentially raising new car prices.
Still, the most widely-purchased products that Americans buy from China — clothes, shoes, toys, and electronics such as the iPhone — have not yet been hit with extra tariffs. The Trump administration has sought to avoid taxing those items because the impact on consumers would be so visible. But Trump has threatened to change that if a deal isn't reached, and said he would place tariffs, if necessary, on the remaining $290 billion or so of Chinese imports.
Here's a closer look at the tariff increase and how it might play out:
THE PRESIDENT SAYS CHINA IS PAYING THESE TARIFFS, NOT AMERICANS, RIGHT?
Yes, but he is wrong. Instead, American businesses and consumers will pay.
Friday morning Trump tweeted , "Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind." But that's not how import taxes work. They aren't paid by Chinese companies. They are paid by the U.S. importer, which can be a large retailer, a wholesaler, or a manufacturer. Those companies have to pay the tariffs or the products won't make it off the docks of a U.S. port.
Huge U.S. importers, such as major retail chains, may have the clout to force a Chinese supplier to cut their prices to offset some or all of the tariffs. But studies show that hasn't made much difference so far.
Including the China tariffs as well as other duties Trump has imposed on items such as steel, American businesses and consumers were paying $3 billion a month in higher import taxes by the end of last year, according to a study in March by economists from the Federal Reserve Bank of New York, Columbia University, and Princeton University.
"Tariffs are taxes, paid for by Americans consumers and businesses, not by China," said David French, vice president of government relations at the National Retail Federation.
SO WHAT WILL I PAY MORE FOR?
Look for higher costs for school backpacks when back-to-school shopping begins. If you're planning to remodel your home, higher tariffs on granite, marble, steel, lumber and other building materials will make that more expensive. The National Association of Home Builders estimates the duties will cost developers $2.5 billion a year.
Furniture, including bedroom and office furniture, will get hit, as well as refrigerators and freezers, air conditioners, handbags, baseball gloves, bicycles, and luggage. Shrimp, tuna, fish sticks and many other types of sea food will also cost more.
About 80% of all luggage sold in the United States is from China, according to the U.S. Travel Goods Association. Most luggage and backpacks already face 17.6% duties and the extra tariffs will increase that to 42.6%, the trade group says.
Tiffany Williams, who owns The Luggage Shop in Lubbock, Texas, says most of the U.S. importers that she buys from quickly raised their prices 10% after the Trump administration first imposed 10% tariffs in late September. One vendor told her that they would raise their prices 25% immediately after Trump tweeted on Sunday his threat to lift tariffs to that level.
Williams has had to raise her prices as well, which has lowered sales, particularly for higher-priced brands such as Tumi and Briggs and Riley. Overall sales fell 8% during the winter holidays, she said, and she decided against hiring any seasonal employees, as she has in previous years.
"This has been a challenging time for our business," Williams said. Some vendors absorbed the 10% tariff hike and didn't pass on the cost, she said, but "I don't think anybody can eat an extra 15%."
Also, your next new car may cost more. The duties have been imposed on $9.2 billion of auto part imports, according to the Peterson Institute for International Economics. Kristin Dziczek, a vice president at the Center for Automotive Research, calculates that the tariffs will raise the cost of U.S.-made cars by $190, most of which will likely be passed on to the consumer.
A study by the Trade Partnership , a consulting firm that works with the NRF, found that the duties will cost the average family of four $767 if they remain in place for at least a year.
WHEN WILL PRICES RISE?
It could take a few weeks.
The tariffs are being applied to products that are shipped from China on Friday, but not before. It takes about three weeks for a large container ship to reach the United States from China, so the first goods to pay the tariff won't arrive until then.
That might even allow U.S. and Chinese negotiators to reach a last-minute deal that could allow the U.S. to rescind the tariffs before they really take effect.
Still, some companies will use the tariff announcement to start billing retailers right away, French said. Some of those costs could then be passed quickly to consumers.
Either way, prices across the huge $20 trillion U.S. economy won't move that much. A report by the Federal Reserve Bank of San Francisco in February said that Chinese tariffs imposed last year — 25% on $50 billion of imports, and the 10% on $200 billion — had lifted consumer prices by just 0.1 percentage point.
HOW WILL ALL THESE TARIFFS IMPACT THE ECONOMY?
They will make a dent. Oxford Economics estimates that U.S. growth will slow by 0.3 percentage point in 2020.
More damage would occur if Trump follows through on his threat to slap 25% tariffs on all remaining Chinese imports, which totaled $539.5 billion last year. Oxford estimates that would cut growth by 0.5 percentage point next year and cost the U.S. 300,000 jobs.
HAVE OTHER TARIFFS RAISED PRICES FOR CONSUMERS?
Yes. The Trump administration slapped a 20% tariff on all imports of washing machines early last year. That lifted prices on not only washers but also dryers by 12% each in the first half of 2018, according to a study by economists at the University of Chicago.