President Donald Trump is trying to structure new tariffs on Chinese imports in a way that disguises their impact on American consumers. But the tariffs will hit Americans’ wallets anyway, in ways that are both indirect and direct.
To recap the status of Trump’s trade wars: Since January, Trump has imposed tariffs ranging from 10% to 50% on $107 billion worth of goods imported to the United States, including washing machines, solar panels, steel, aluminum, and hundreds of Chinese products. Trading partners hit with new American tariffs have retaliated with their own tariffs on U.S. exports. Trump, meanwhile, has threatened additional tariffs on another $200 billion worth of Chinese imports, and $208 billion worth of imported autos from everywhere. It’s getting serious. Financial markets are dyspeptic.
Trump says his tariffs are meant to protect American workers and key U.S. technologies. But most economists say Trump’s protectionism will do more harm than good — and perhaps considerable harm. Here are five ways the Trump tariffs will ultimately impact consumers:
They’ll raise prices. Other than solar panels and washing machines, most products hit with the Trump tariffs are components of other products, such as aircraft parts, metal for cars, semiconductors for electronic devices, and injection-molding machines used to make rubber and plastic products. Most consumers will never buy raw steel or a pallet of semiconductors — but just about all of us buy products that contain components subject to new tariffs. As production costs go up, producers will pass higher costs down the chain, with consumers ultimately paying more for finished products.
[Here’s a scorecard for the Trump tariffs.]
If Trump goes further and imposes tariffs on another $200 billion worth of Chinese imports, it probably would affect consumer products such as toys, apparel, TVs and mobile phones. Those tariffs would be limited to 10%, so as not to shock consumers too dramatically. Still, a $300 TV could shoot up to $330, essentially overnight.
They’ll stoke inflation and push interest rates up. Trump’s tariffs are arriving as the Federal Reserve is in a tightening cycle, raising interest to assure inflation stays in check. Inflation is low right now, but a tight labor market is pushing wages up, which usually pushes prices up. Additional upward pressure on prices from tariffs could lead the Federal Reserve to raise rates more aggressively, pushing up borrowing costs for consumers and raising the odds of a recession caused by tighter lending standards.
[Check out our Trumponomics report card]
They’ll rattle financial markets. Investors are already worried that modest moves on trade could mushroom into a crisis that damages global growth — one reason financial markets have become more volatile and stocks are barely up this year. Stock values affect the wealthy more than the middle class, but many ordinary Americans own stocks in retirement plans, and the direction of 401(k) plans impacts consumer confidence.
They’ll hurt American exporters and their employees. It’s normal for trade partners hit with tariffs to retaliate in a similar way, so it’s no surprise China and other countries have identified American exports they’ll impose tariffs on, in response to Trump’s moves. That raises the price of U.S. products and typically reduces sales, which can force American firms to lay off workers or curtail hiring. That could hurt American workers in aerospace, agriculture, chemicals, energy, shipping and other fields. Some U.S. firms would also have an incentive to move American facilities offshore and hire foreign workers, so goods produced at those locations wouldn’t be subject to tariffs.
They’ll hurt U.S. companies operating overseas. China, in particular, can retaliate against American interests in ways that don’t involve tariffs. Most big U.S. companies have operations in China, and the government there can arbitrarily shut down foreign businesses for just about any reason. That would affect Americans working in China for U.S. firms, and would also crimp an important source of profits for many U.S. companies. If everything else in the economy is going right, companies redeploy resources and earn a nifty return elsewhere. But when trade wars generate recession fears, employers might just sit on their cash, tighten up payrolls and wait to see how bad the damage is likely to be.
Confidential tip line: [email protected]. Click here to get Rick’s stories by email.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman
Follow Yahoo Finance on Facebook, Twitter, Instagram, and LinkedIn