Trump’s tariffs on imports could hit American wallets
American consumers and businesses would pay — literally — if president-elect Donald Trump followed through on his campaign pledge to slap big taxes on imports from China and Mexico.
Trump said during the campaign that he’d impose tariffs of 35 per cent on Mexican imports and 45 per cent on Chinese imports to protect American jobs from unfair foreign competition. Companies that import those goods would pay the tax at the border.
Many of those firms would likely try to heap as much of the cost as possible on their customers. The result is that American consumers could end up paying more for foreign-made clothing, tablet computers and other electronics.
A 45 per cent tariff on Chinesemade goods could drive up U.S. retail prices on those goods by an average of about 10 per cent, Capital Economics has calculated. Consumers would find it hard to escape the price squeeze.
“There are few alternative sources for the main products the U.S. buys from China,” says Mark Williams, Capital Economics’ chief Asia economist. He notes, for example, that China supplies about 70 per cent of the world’s network equipment, cellphones, laptops and tablet computers.
Since Trump’s election, his team has de-emphasized the use of tariffs, describing them as a potential tool to be used to pry concessions from America’s trading partners.
“Everybody talks about tariffs as the first thing,” Wilbur Ross, an investment banker who is Trump’s choice for Commerce secretary, told CNBC Wednesday. “Tariffs are part of the negotiation.”
They would also be risky. Tariffs could ignite a trade war if, as expected, China and Mexico retaliated by imposing tariffs or other sanctions of their own on the United States.
Analysts say Trump might rethink his tough trade talk once he fully weighs the costs — not all of which would be economic. A trade war would likely have diplomatic consequences, making it harder, for example, to enlist China’s help in trying to defuse the threat from North Korea’s nuclear ambitions.
“It will only result in collateral damages to both sides,” says economist Song Lifang of Renmin University in Beijing.
Even without a broader conflict, tariffs can damage corporate America. Back in 2002, then-president George W. Bush imposed tariffs of up to 30 per cent on imported steel. American steel producers took advantage of the tariffs to raise their own prices, thereby squeezing U.S. industrial companies that buy steel. The Consuming Industries Trade Action Coalition, representing steel buyers, has said the tariffs cost thousands of U.S. jobs.
“That was an awful thing for us,” says Bill Smith, president of Termax Corp. of Lake Zurich, Ill., which makes fasteners for the auto industry. “We are pretty nervous here at Termax” that Trump will target Chinese steel with tariffs again.
Smith says Termax wouldn’t be able to pass along the higher cost to its automaker customers — “They can just choose to use a different (foreign) manufacturer” — and would have to absorb the costs itself.
Ford Motor CEO Mark Fields warned on CNBC last month that a 35 per cent tariff on imports from Mexico, where Ford is building its Focus compact car, “would affect the entire auto sector.”
Trump’s proposed tariffs reflect frustration over the trade deficits in goods the United States runs with China ($367 billion last year) and Mexico ($61 billion). The deficit is the gap between the value of the goods the United States exports and the larger value of the goods it imports.