Next tariffs will hit buyers harder
New levies may sting consumers 10 times more than earlier ones.
The next round in the U.S.-China trade war could be the costliest one yet for American consumers.
The U.S. is said to be preparing to announce tariffs on all remaining Chinese imports by early December, according to several people familiar with the matter — and Citigroup economists are projecting that the effect at the checkout counter may be as much as 10 times higher than the earlier rounds of levies.
The new penalties, which could take effect in early February, would encompass hugely popular goods such as Apple iPhones and Nike shoes that are made in China but so far have been left untouched by the Trump administration.
The effect of a 10% tariff on the $267 billion of imports could be 10 times larger than the first $50-billion round and double that of the $200-billion second round, the economists conclude.
“Amid tight labor markets and higher input costs, we think there is a risk that firms decide to pass through some of the costs to consumers,” wrote analysts Cesar Rojas, Catherine Mann and Veronica Clark in the Citigroup Global Markets report dated Oct. 29. “The additional tariffs on China have the potential to boost inflation even more than what we currently anticipate.”
Such a scenario would give the Federal Reserve more ammunition to continue its campaign to boost interest rates, which has contributed to a decline in the stock market and drawn a bitter rebuke from President Trump, who has accused the Fed of sabotaging economic growth.
U.S. officials are preparing for additional levies in case a planned meeting between Trump and Chinese President Xi Jinping yields no progress on the sidelines of a Group of 20 summit in Buenos Aires in November, according to two of the people, who declined to be identified to discuss internal deliberations.
They cautioned that final decisions had not been made. Meanwhile, Trump has played both sides of the ball in recent days — accusing the Chinese of damaging the U.S. economy while raising hopes of a deal.
“We are in the middle of a pretty nasty dispute. We’re in a trade dispute — I want to use that word because it’s a nice, soft word — but we’re going to win,” Trump said Saturday at an event in Indiana. “You know why? ’Cause we always win.”
Then, late Monday, in an interview with Fox News, he said, “I think we will make a great deal with China, and it has to be great because they’ve drained our country.”
Any further broadening of tariffs would show the Trump administration’s determination to punish China even as companies complain about the rising costs of tariffs and financial markets continue to be nervous about the global economic fallout.
“Levies on such a wide range of goods would deal a tangible blow to China’s growth,” said Tom Orlik and Chang Shu of Bloomberg Economics, which estimates that the drag on 2019 GDP growth could be about 1.5 percentage points, assuming a tariff rate of 25% on all Chinese imports.
Still, multiple factors make such a drop unlikely, including prospects the U.S. might not go so far and China’s various options to sustain growth.
White House Press Secretary Sarah Huckabee Sanders declined to give specifics when asked about the importance of the meeting at a Monday media briefing.
“I’m not going to get ahead of the conversation,” she said. “You have two of the most powerful leaders in the world. I think that’s consequential no matter how you look at it, and we’ll see what happens when they sit down.”
The U.S. this year has already imposed tariffs on $250 billion in goods from China. Ten percent tariffs on $200 billion in imports that took effect in September are set to increase to 25% on Jan. 1.
Trump has also threatened to impose tariffs on the remaining goods imports from China, which last year were worth $505 billion.
Producers and retailers of apparel and footwear are already planning for the higher tariffs, said Stephen Lamar, executive vice president of the American Apparel & Footwear Assn.
“Companies are looking down the road and expecting tariffs to come,” he said in an interview Oct. 23. “Everyone knows he’s going to do it.”
However, he warned there is no easy way to shield American consumers from the blow.
As companies consider switching to suppliers in other parts of Asia, the law of supply and demand is putting upward pressure on costs elsewhere.
“Everyone is leaving China and going to the same places,” Lamar said. “Vietnam gets more expensive, Cambodia gets more expensive, everywhere gets more expensive.”