Key Takeaways
- U.S. consumers are likely to see immediate price increases on items brought in from China at retailers such as Target, Walmart, and Amazon, one trade expert said.
- Price increases are likely to match the size of tariffs themselves, at 145%.
- Economists said higher prices could represent short-term pain with little chance of long-term gain, as many obstacles prevent the return of Chinese manufacturing to the U.S.
Consumers, businesses, and even the prospects for U.S. manufacturing are all likely to become casualties in the escalating trade war between the U.S. and China, trade experts say.
Last week, the president shifted tariffs to temporarily take some of the pressure off of other countries while punishing China, which has retaliated against the U.S. with tariffs of its own. As of Monday, China faced a tariff of 145% on its products, with a temporary reprieve for electronic devices.
Economists predicted the trade war between the world’s two largest economies would have serious consequences for American consumers and workers.
The Price of Import Taxes
The tariffs, which started this month, could quickly increase the prices shoppers see at popular online and brick-and-mortar retailers.
“Most of the things you might see on the inside of the store at a Target or a Walmart or on Amazon, I think we would expect significant price increases pretty immediately,” said Christopher Conlon, an associate professor of economics at the Stern School of Business at New York University.
Clothing, toys, and plastic items with small electronics in them (such as vacuums, toasters, and small appliances) will likely be among the first products to see immediate price increases. Conlon estimated about 50% to 60% of Amazon’s offerings would be affected, and many would rise by about the same amount as the tariffs.
Conlon had some advice for consumers that economists don’t usually give: it might make sense to buy certain items before prices go up.
“If you have the cash on hand and you’re really worried about buying some of these things, it might not be the worst idea to stock up on them,” he said, noting that big-ticket items that last a long time, like appliances, would make the most sense to buy now. “The big caveat is, of course, next week, we could be having a completely different conversation about tariffs because this situation is evolving very quickly.”
Will the Cost Be Worth It?
Eventually, manufacturers could adapt to the tariffs by moving production out of China to countries like Vietnam or Mexico, which have lower tariff rates, at least for the time being, Conlon said.
But could all the short-term pain result in long-term gain? The tariffs are meant to restore U.S. manufacturing to its glory days after WWII, when America, not China, was the world’s factory, by encouraging businesses to set up plants in the U.S. rather than abroad.
There are a few obstacles standing in the way of that outcome, said Sina Golara, assistant professor of supply chain and operations management at Georgia State University’s Robinson College of Business.
For one thing, even as high as the tariffs are, it still might be more cost-effective to manufacture many things in China than in the U.S., Golara said. Companies hoping to set up in the U.S. would have to not only build a factory but also replicate the infrastructure and supply networks that have been built up over decades. On top of that, U.S. workers are paid more than their Chinese counterparts, adding to production costs.
“The cost gap is so much that even tariffs being as high as they are today would still not make it expensive enough to be worth moving everything to the United States,” Golara said.
In addition, the tariffs themselves are an obstacle because they make it more expensive for a factory located in the U.S. to import parts and materials from other countries.
What Is The Best Outcome From This Trade War?
Another headwind for the U.S. economy is that China has some leverage to harm American consumers and companies with its own trade policies.
China could cut off imports from U.S. companies and stop exports of certain important minerals used in advanced manufacturing, of which China is the main or only supplier, Conlon said.
Experts said the best possible outcome of the showdown for the economy would be if both sides reached a deal to lower tariffs on one another. However, the sprawling nature of Trump’s trade war complicates that task, as does the pattern of on-again, off-again tariff announcements.
“There’s another case where you engage in a war, and then you just dial back half of your tariffs,” Golara said. “In that case, you’re really hurting everyone, except you’re hurting everyone else a little bit more … it’s kind of like a mutual destruction tool.”