The headline numbers sound large, but the 10 percent duties that President Trump imposed on almost $200 billion of Chinese imports amount to only a fraction of U.S. inflation, Commerce Secretary Wilbur Ross says.
Such a tiny fraction, in fact, that an average American family with an income of $62,000 a year won’t “actually notice it at the end of the day,” he argued in an interview with with CNBC on Tuesday morning.
Retailers and manufacturers, however, are already raising prices to cover higher supply costs and warning there may be trouble ahead. Companies that touted sales growth in their most recent quarterly financial reports say it may fizzle in the rest of the year as Trump’s escalating trade war undermines the benefits of loosening regulations and last year’s tax cuts.
[More: New China tariffs will cost estimated 94,000 jobs]
“While the net economic cost may be modest, losses are likely to be disproportionately felt by U.S. households, as they face higher prices for many goods,” said Michael Gapen, an economist with British lender Barclays Plc. “We are already seeing some evidence of the effect of tariffs on consumer prices.”
Memphis, Tenn.-based AutoZone, for instance, said Tuesday that it has already raised some prices and plans further increases to counter the growing effects of the levies on costs. Chief Executive Officer William Rhodes III still hopes to avoid “significant inflation” that would shock consumers.
Rhodes and his peers at U.S. retailers are joining a grow chorus of critics — including lawmakers and economists — who say the White House is underestimating the risks of its protectionist policies. Even with double-digit tariffs already in place on steel, aluminum and nearly $250 billion in Chinese imports, Trump has threatened levies on an additional $267 billion in shipments from the world’s second-largest economy as well as 25 percent duties on auto imports.
Although the China duties so far affect only about a third of the goods that global shipping company FedEx moves between that country and the U.S., Chief Marketing Officer Rajesh Subramaniam said this week that economic activity in China appears to be slowing.
“The uncertainty around the issue and the potential for additional tariffs is affecting the market,” he said.
The potential for such collateral damage is among the chief concerns of economists like Luke Tilley of Wilmington Trust, who noted that the duties may force companies to rethink complex cross-border supply chains.
With many manufacturers relying on Chines parts and materials for goods produced in the U.S., “it’s hard to calibrate how the impact of these tariffs will play out,” he told the Washington Examiner.
Trump has largely dismissed concerns about his policies, however, arguing they will ultimately benefit the U.S. economy by producing better trade deals, a position Ross supported in his CNBC interview.
“The real purpose is not to end up with tariffs — the real purpose is to end up with a level playing field so that American firms can compete properly,” he said. “The important thing for everybody to understand is this is not a shot from the hip. This is something carefully thought out.”
While the present situation is “highly uncertain,” the White House is likely to move forward on the next round of Chinese imports in the next few weeks,” Goldman Sachs economists Alec Phillips and Blake Taylor said in a report.
“We believe there is a slightly greater than 50 percent chance that the tariffs will take effect in early 2019,” they added. “Although there is a fair chance that U.S. and Chinese officials will ultimately reach an agreement to reverse the tariffs, we believe reaching such an agreement this year will be a challenge.”
