A year ago, the prospect of imminent 10% tariffs on some $300 billion in Chinese imports would have sent Wall Street into a tailspin.
Now, it’s a relief to the business owners, economists and lawmakers who feared duties more than twice as high. Many have spent the past 12 months warning President Trump that his escalating trade war with the world’s second-largest economy is undermining the benefits of GOP-led tax cuts and threatening the White House’s signature achievement heading into the 2020 election.
Trump has been largely undeterred, however, waxing eloquent about the beauty of the word “tariff” on Twitter and elsewhere. Duties of 25% already imposed on $250 billion of Chinese goods, some of which were raised after an impasse in trade talks between Washington and Beijing, will help drive President Xi Jinping to give U.S. companies more access to Chinese markets and halt China’s appropriation of trade secrets, he has said.
In the event they prove insufficient, Trump has indicated he would go even further, imposing 25% levies on all remaining Chinese imports. On Wednesday, however, the president hinted at a small concession, telling Fox Business anchor Maria Bartiromo that he might start at just 10%, which he said “people can absolutely handle.”
Describing tariffs as taxes, Trump claimed once again that they were paid by China, a statement that has irked U.S. importers who actually pay the levies themselves when their goods arrive in port.
“I’m very happy where we are now,” Trump added, holding out the possibility of a trade deal when he meets with Xi at the G-20 summit in Japan, which is just days away. “We have to get a good deal,” though, he added. “They have taken advantage of us as a country for so long.”
Still, the likeliest outcome of the talks isn’t an immediate deal, said Mark Haefele, global chief investment officer for the wealth management division of Swiss lender UBS. He predicts a temporary moratorium on additional tariff increases and an agreement to hold further negotiations, with a 35% chance that Trump instead moves ahead with new levies.
In that case, he said, “negotiations would likely pause for some time and resume only when the growth outlook for both countries worsens considerably.”
Already, the Federal Reserve has cited growing risks from trade disputes as one of the economic risks that may spur a reduction in interest rates later this year, a concession that Trump has been pressuring the central bank to make.
And representatives of more than 300 companies, many of them small businesses, traveled to Washington during the past week to urge the Trump administration to refrain from new tariffs.
Even more submitted written statements opposing the charges. Among them was Bailey Riegelhaupt, owner of Bridal Secret in Braintree, Massachusetts, who said new 25% duties would probably force her to lay off workers and possibly necessitate shutting down her small business altogether after 27 years in operation.
“The tariffs which are in place now and may be in place for some time are a significant burden on U.S. companies and farms,” said Tom Linebarger, CEO of engine-maker Cummins Inc. “That doesn’t mean the structural reforms don’t need to be made. I just think those tariffs are a significant burden, and it’s really important for both countries to sit down and talk and find a way through the issue.”
The tariffs’ costs have already surpassed the benefits of 2017 tax cuts for some businesses and are threatening to do the same for consumers.
The initial Chinese duties imposed in 2018, which included 25% charges on $50 billion of goods and 10% levies on another $200 billion, cost the typical U.S. household $419 a year, according to an analysis by the Federal Reserve Bank of New York.
Applying the 25% rate across the board, as the U.S. did this year, raises the cost to $831, the analysis showed. The 2017 tax bill, on the other hand, saved taxpayers with an annual income of $50,000 to $85,000 about $930 a year, according to the Tax Policy Center.
The next round of tariffs, business leaders warn, will cut far deeper. They will apply to a wide range of consumer products that had escaped previous duties and force up prices for even low-income buyers who can ill afford to pay more.
“U.S. trade policy should not force families, who are already struggling financially to raise their children, to buy second-hand children’s products,” Greg Beno, the vice president of supply chain for Graco, a maker of child-related merchandise from car safety seats to high chairs, wrote to U.S. trade officials.
“Tariffs on these products will not persuade China to change its policies on intellectual property, industrial policy or even on trade retaliation,” he said. “They will hurt American families and caregivers and put American children at a greater risk of injury.”
