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When China retaliated after the Trump White House imposed tariffs last summer, American farmers got whacked. U.S. crop exports to China sank in 2018 by more than two-thirds.
The typical American household and the broader U.S. economy didn’t suffer much at all, but the cost could become more visible — and painful — if the latest flare-up in trade tensions between the two countries explodes into a full-blown crisis.
President Trump has applied a larger 25% tariff on $200 billion of Chinese goods and is threatening to apply that tariff rate to even more products. The White House has accused the Chinese of backsliding on previous pledges.
Read: ‘China has chosen to retreat’ — the U.S. view as negotiations reach critical juncture
Last year the U.S. slapped a 10% tariff on $200 billion in Chinese goods, but it postponed further punitive measures as negotiations to strike a deal intensified earlier this year.
Read: Why the U.S.-China trade deficit is so huge: Here’s all the stuff America imports
China almost certainly will retaliate. “The Chinese side deeply regrets that if the U.S. tariff measures are implemented, China will have to take necessary countermeasures,” the government said Wednesday. The U.S. exports about $120 billion in goods to China each year.
Midwestern farmers would likely bear the brunt of the cost again. Agricultural exports fell to $5.9 billion in 2018 from $15.9 billion in 2017 as China shunned American soy and corn.
Many U.S. companies that make products in, source parts from, or export to China would take another hit. Apple AAPL, -1.07% Intel INTC, -5.32% Harley-Davidson HOG, -0.75% , General Motors GM, -1.65% and Caterpillar CAT, -0.57% have already blamed slower sales growth or higher costs on the festering trade dispute.
The cost to the average family would also go up if the higher tariffs were to take effect.
Estimates range from several hundred to several thousand dollars a year, depending on what each family buys and how they change their behavior.
Many popular consumer goods are produced in China, including TVs, cell phones, appliances, bicycles, toys, furniture, clothes, auto parts and recreational equipment for boating and camping. Some of those products like cell phone have escaped tariffs so far.
“Regardless of any perceived negotiating leverage they may provide, tariffs are taxes paid by American families, workers, and businesses, plain and simple — China does not foot the bill,” argued Thom Dammrich, president of the National Marine Manufacturers Association.
Dammrich echoes a complaint made by business leaders around the country, virtually all of whom applaud the goal of fair trade pushed by the Trump White House but disagree with the tariff-laden strategy. They argue the costs outweigh the benefits.
Yet the White House has faced little backlash from the public and thus little pressure to change its tactics. How come? Most consumers haven’t noticed the effects on tariffs on what they spend or on the broader U.S. economy.
The cost of many widely imported consumers goods, for instance, haven’t risen very much, and in some cases. they’ve actually declined.
Take clothing. The cost of apparel actually dropped 2.2% in the past year — the biggest yearly decrease since 2003, government figures show. Prices of TVs, toys and computers have also fallen.
One of the few imported goods to see a substantial price increase is appliances. After declining from 2013 to early 2018, the cost of major appliances in the U.S. has surged almost 9% in the past year — the biggest increase of any imported good exposed to tariffs. Yet most households don’t need to buy a new fridge, dishwasher or dryer every year.
The U.S. economy, meanwhile, grew 2.9% last year to match the fastest annual increase since the end of the Great Recession a decade ago. If anything, the relatively strong performance of the U.S. economy appears to have emboldened the Trump White House to stand fast.
An escalating trade spat with China, however, would weigh more heavily on the U.S. economy.
Oxford Economics predicts gross domestic product will grow about 2.2% this year, but it could slow to less than 2% in 2019 if higher tariffs kick in and no deal is reached. Inflation might also rise a bit faster.
The biggest damage, economists say, would result from the heightened uncertainty the standoff creates among businesses and investors.
Companies could cut back on investment or struggle to find lower-cost suppliers to replace Chinese partners. And Wall Street would have to gauge the effects of a trade war on the health of the U.S. and global economies.
A new round of tariffs “would likely drag on business confidence and investment,” said Lewis Alexander, chief U.S. economist at Nomura. “The deterioration in equity markets since Trump’s tweet over the weekend highlights that vulnerability.”
The Dow Jones Industrial Average DJIA, -0.54% and the S&P 500 SPX, -0.30% have declined this week.
While the White House can immediately raise to 25% the 10% tariff that now covers $200 billion in Chinese imports, the administration would have to follow a series of legal steps that could take months to apply the 25% tariff to an additional $325 billion in Chinese products that have been left alone.
The lengthy U.S. tariff process would give the two countries even more time to iron out a deal.
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