Bottom line: The latest round of tariffs that took effect on Sunday and the upcoming ones are projected by the Congressional Budget Office to reduce the real US GDP by an estimated 0.3% by 2020, with the average real household income expected to drop by $580. The effect is that American families will see their average annual cost increase between $300 and $1,000 by the end of this year.
We've known since the beginning of August that the US was going to begin imposing 15 percent tariffs on a wide range of Chinese products, to which China has responded with import duties on American crude oil. The decision affects everything from footwear, clothing, and wearables to PCs, game consoles, and smart TVs, and is part of a trade war with no end in sight.
Big tech in particular is calling for a truce, but in the meantime companies like Apple are looking towards India and Vietnam as the next destinations for their manufacturing needs. With that in mind, it's important to look at the effect that tariffs will have on American consumers, especially since we're talking about almost $110 billion in Chinese imports if you go by Bloomberg or $125 billion according to Reuters.
Economists Kirill Borusyak at University College London and Xavier Jaravel at the London School of Economics estimate the average American family will see a $460 hit by the end of the year. Of course, this is all based on estimated spending habits and the cost ranges from $340 for the poorest to $970 for the wealthiest households, where income exceeds $160,000 per year.
It's also worth noting that this doesn't include the upcoming waves of tariffs, and the trade war will increase the price of consumer electronics much more than life essentials like food and clothing. Still, the poorest will be hit the hardest because the import duties have a disproportionate effect on different classes, even though economists are optimistic that necessities "won't break the bank" for most people.
Organizations like the National Retail Federation believe the impact on the US economy and small businesses in particular is too big to ignore. Carltons Men’s and Women’s Apparel co-owner Trey Kraus told Senator Chris Coons during a store tour that he wants the president "to understand that the tariffs are being paid for by the American people." He explained that small businesses depend on China to source some of their materials and that the tariffs will have a "profound and punitive effect on everyone in our local economic community.”
Previously, the Trump administration levied a 25 percent import tax on $250 billion worth of goods from China, but those were targeted at products like solar panels and big home appliances like washing machines. The upcoming rounds of tariffs will cover almost everything that comes from the Asian country, down to children's toys, toothbrushes and nail clippers.
It all adds up to $300 billion worth of goods, which is why China has retaliated with import duties on $75 billion worth of American goods. Meanwhile, Trump says China is paying for the newly imposed tariffs and that farmers are protected from the fallout by federal payments. Companies and economists disagree, arguing that ultimately the cost is passed on to the consumers, who will likely reduce their spending as a result.
Interestingly, Bloomberg notes that German manufacturers BMW and Daimler who each sell over 40 million cars a year in China are in a particularly bad spot, with import taxes adding 50 percent to the cost of importing them into the Asian country.
Tech giants like Apple have tried every avenue possible to get some relief on tariffs, even arguing that rivals like Samsung would have an unfair advantage. Trump has yet to change his mind on the matter and analysts like Ming Chi-Kuo speculate that Apple will keep their prices the same and absorb the tariffs until it can shift its production out of China.
Annaliese Griffin has an interesting read on how to insulate yourself from the trade war. In short, while some of the added cost from tariffs is unavoidable, a strong case can be made that you could always adjust your spending habits to avoid wasting money on things you don't need.