Welcome to the trade war. Since President Trump's initial announcement of tariffs on steel and aluminum imports last month, China and the European Union have responded with threats to apply tariffs to American products in retaliation. This list of goods subject to new tariffs is now expanding on both sides with a new US proposal to apply tariffs to 1,300 Chinese exports in retaliation for the alleged theft of trade secrets.
To understand how tariffs will affect your wallet, you first have to understand what a tariff is. A tariff is a tax on goods that come into a country. The idea is to apply a tax to foreign-made products in order to make American-made products cheaper in comparison.
While the tax is officially levied on the exporter, the ultimate cost is paid by the consumer in several ways. Not only would the prices of imported goods be increased directly, but products made in the US that use foreign components would also become more expensive. Second, consumers who choose to buy domestically-produced goods would pay more than they would for untaxed imports.
The latest US list of potential tariffs is aimed at Chinese aerospace, tech and machine industries and would apply a 25 percent tax to these imports. CNN notes that the move would result in higher prices for a long list of consumer goods that includes consumer electronics, such as mobile phones and flat-screen televisions, as well as appliances, such as dishwashers. Apple's iPhones are primarily assembled in China, which would make them subject to 25 percent price increase.
The US is also considering a tax on electronic components such as LED lights, copper wire, capacitors and resistors, pulleys, screws and motor parts that would make American-made electronics more costly and less competitive. These components are used in items that range from computers and printers to coffeemakers and refrigerators.
“There's potential this a major hit to the pocketbooks of Americans, based on what we're seeing right now,” said Jack Cutts, of the Consumer Technology Association. “ We're down at the basic building blocks of consumer electronics.”
While replacements for some taxed imports could be found domestically, it is unlikely that untaxed replacements could be found for all the taxed components. Even so, with competition hobbled by tariffs and demand increasing for items from untaxed sources, those companies could easily raise prices as well.
The US list is also unlikely to be the end of the new tariffs. The Chinese government said in a statement, “As the Chinese saying goes, it is only polite to reciprocate.” The statement added that China intends to enact “corresponding measures of equal scale and strength against U.S. products” and take the matter before the World Trade Organization.
“We have been saying that China wouldn't start a trade war,” a Chinese Foreign Ministry spokesperson told CNN. “But we are not afraid of it, and we will resolutely fight to the end if someone insists on a war.”
American business and farm groups also warned against the implementation of tariffs. Myron Brilliant of the US Chamber of Commerce said, “The administration is rightly focused on restoring equity and fairness in our trade relationship with China. However, imposing taxes on products used daily by American consumers and job creators is not the way to achieve those ends.”
American farmers are concerned about Chinese retaliatory tariffs on crops that they sell abroad. A 25 percent Chinese tariff on US farm exports would allow countries like Brazil to undercut American prices. The US could lose 40 percent of its global market for soybeans said the Des Moines Register.
“If we go into a long, sustained period of low prices, it will impact some farmers' ability to stay on the farm,” said Kirk Leeds, CEO of the Iowa Soybean Association. “ For farmers on the edge, this could be very detrimental.”
It isn't clear when the tariffs will go into effect. The Trump Administration plans to hold a public hearing on the matter on May 15 and there is currently no date set to implement the new taxes. The uncertainty about the future makes it difficult for businesses to plan for the future. In the meantime, farmers, businesses and consumers can hope that cooler heads will prevail and that the Trump Administration can work out its differences with our trading partners without taking action that will damage the American economy.