Con­sumers al­ready pay­ing for tar­iff bat­tle with China

The Modesto Bee - - Front Page - BY SA­MAN­THA MASUNAGA AND JAMES F. PELTZ Los An­ge­les Times

Pres­i­dent Trump has re­peat­edly pro­claimed that when it comes to tar­iffs on Chi­nese goods, China pays the price.

But it’s U.S. con­sumers who ac­tu­ally pay, if ex­port and im­port firms and man­u­fac­tur­ers choose to pass along the cost. And trade groups and eco­nomic stud­ies show that U.S. con­sumers al­ready are see­ing higher prices on a range of items – lug­gage and ma­jor ap­pli­ances such as wash­ing ma­chines, for in­stance – that were sub­ject to pre­vi­ous tit-for-tat tar­iffs in the es­ca­lat­ing trade bat­tle with China or re­tal­ia­tory tar­iffs from other for­eign coun­tries.

With the Trump ad­min­is­tra­tion’s tar­iff in­crease from 10 per­cent to 25 per­cent on $200 bil­lion in Chi­nese goods an­nounced Fri­day, prices could rise on other goods as well. China re­tal­i­ated Mon­day with tar­iffs rang­ing from 5 per­cent to 25 per­cent on $60 bil­lion of U.S. goods.

The tar­iffs so far ap­pear to have had a mod­est im­pact on over­all in­fla­tion. The U.S. con­sumer price in­dex for the 12 months that ended in April, ex­clud­ing the volatile food and en­ergy sec­tors, rose 2.1 per­cent, ac­cord­ing to the Bureau of La­bor Statis­tics. That was lit­tle changed from the prior four months, when the CPI showed trail­ing 12-month in­creases of 2.0 per­cent to 2.2 per­cent.

How­ever, Gold­man Sachs an­a­lysts said in a re­port that when they grouped to­gether nine of the CPI prod­uct cat­e­gories af­fected by the tar­iffs so far, in­clud­ing laun­dry and other ap­pli­ances, fur­ni­ture and auto parts, it showed those con­sumer

prices in­creased “much more” than other core goods prices in the CPI.

When the ad­di­tional tar­iff costs con­sumers paid in the lat­ter part of last year are an­nu­al­ized, the cost per house­hold is about $419, said David We­in­stein, a pro­fes­sor of eco­nomics at Columbia Univer­sity who coau­thored a work­ing pa­per re­leased by Lon­don’s Cen­tre for Eco­nomic Pol­icy Re­search on the ef­fect of the Trump ad­min­is­tra­tion’s 2018 trade pol­icy on U.S. prices.

If the ad­di­tional tar­iffs an­nounced by the Trump ad­min­is­tra­tion last week are im­ple­mented and stay in place for a year, that an­nu­al­ized con­sumer cost is likely to dou­ble, We­in­stein said.

“When tar­iffs get re­ally high, ex­porters stop sup­ply­ing prod­uct and the tar­iff stops pro­duc­ing any rev­enue,” he said.

Here are some of the items whose prices have al­ready risen or are ex­pected to in­crease.

HOUS­ING

The tar­iffs to date also have hit the home-build­ing in­dus­try, and al­ready have added $1 bil­lion to the costs of U.S. hous­ing con­struc­tion, ac­cord­ing to the Na­tional Assn. of Home Builders. That could jump to $2.5 bil­lion with the lat­est hike in tar­iffs by the Trump ad­min­is­tra­tion, the trade group said.

Ma­te­ri­als af­fected by the U.S. tar­iffs on Chi­nese im­ports so far in­clude gran­ite, ce­ment, vinyl floor cov­er­ings, wafer­board, ce­ramic tiles and stain­less steel, the builders group said.

It’s not clear how much of those added costs builders ac­tu­ally passed along to new-home buy­ers in var­i­ous mar­kets. Those prices are heav­ily in­flu­enced by the sup­ply and de­mand for hous­ing in a given lo­ca­tion, along with mortgage in­ter­est rates.

Robert Di­etz, the group’s chief econ­o­mist, pre­dicted in an email that the ris­ing ma­te­ri­als costs “will be borne by home buy­ers, ren­ters and re­mod­el­ing home­own­ers” in the form of higher prices.

LUG­GAGE

About 82 per­cent of the lug­gage sold in the U.S. is im­ported from China, and lug­gage was among the items that came un­der the ini­tial 10 per­cent tar­iff last Septem­ber, ac­cord­ing to the Travel Goods Assn., a trade group whose mem­bers in­clude lug­gage com­pa­nies.

Af­ter the ini­tial tar­iff was an­nounced, “a lot of re­tail­ers rushed in ahead of the hol­i­days with or­ders and for the most part were able to hold the line on prices through the hol­i­day sea­son,” said Nate Her­man, di­rec­tor of gov­ern­ment re­la­tions for the trade group.

But since the start of this year, re­tail prices for lug­gage have climbed 5 per­cent to 10 per­cent, he said. And they are likely to jump an ad­di­tional 10 per­cent to 15 per­cent if the new 25 per­cent tar­iff on Chi­nese im­ports re­mains in place, he said.

The same is true with back­packs, which al­ready have risen about 5 per­cent at the re­tail level this year and could climb an ad­di­tional 10 per­cent to 15 per­cent, Her­man said.

While ma­jor mer­chan­dis­ers such as Wal­mart ac­count for about half of U.S. lug­gage sales, the other half is sold by smaller chains and spe­cialty re­tail­ers that “don’t have the ca­pac­ity to eat the ad­di­tional costs” of the tar­iffs and hold prices steady, Her­man said.

Wal­mart Inc., the na­tion’s largest re­tailer, de­clined to com­ment on whether it has raised prices for any goods im­ported from China. Tar­get Corp. and Best Buy did not re­spond to a re­quest for com­ment.

MA­JOR AP­PLI­ANCES

Af­ter the Trump ad­min­is­tra­tion an­nounced tar­iffs last Jan­uary on im­ported large wash­ing ma­chines, the CPI of ma­jor ap­pli­ances in­creased by about 10 per­cent, ac­cord­ing to the Cen­tre for Eco­nomic Pol­icy Re­search work­ing pa­per.

That change came de­spite the fact that the ap­pli­ances price in­dex had been steadily de­clin­ing since 2013, ac­cord­ing to the pa­per. Af­ter the tar­iff an­nounce­ment, the in­dex started to rapidly climb.

The me­dian price for a wash­ing ma­chine be­fore the tar­iff an­nounce­ment was $749, ac­cord­ing to a pa­per re­leased in April and coau­thored by re­searchers from the Fed­eral Re­search Board, Univer­sity of Chicago and the Na­tional Bureau of Eco­nomic Re­search. The tar­iffs added $86 to that, the pa­per said.

The wash­ing-ma­chine tar­iffs – which are set for three years and were sought by Ben­ton Har­bor, Mich., ap­pli­ance maker Whirlpool Corp. – are aimed at Korean man­u­fac­tur­ers Sam­sung and LG, which have in­creased their U.S. mar­ket shares in re­cent years.

OTHER IN­DUS­TRIES

The Trump ad­min­is­tra­tion’s move to in­crease tar­iffs from 10 per­cent to 25 per­cent on some $200 bil­lion in Chi­nese goods could raise con­sumer prices in other sec­tors, in­clud­ing toys, com­put­ers, elec­tron­ics and fur­ni­ture, an­a­lysts and in­dus­try trade groups said.

Chi­nese prod­ucts, parts or ma­te­ri­als ac­count for about 33 per­cent of the com­put­ers and elec­tron­ics sec­tor, and about 28 per­cent to 30 per­cent of elec­tri­cal equip­ment, said John Mother­sole, di­rec­tor within the pric­ing and pur­chas­ing ser­vice at mar­ket re­search firm IHS Markit.

“You’re talk­ing about a sig­nif­i­cant tar­iff … on a sig­nif­i­cant por­tion of the U.S. mar­ket,” he said. “The sup­po­si­tion is you’re go­ing to start see­ing the pain be­ing felt … in these ar­eas first.”

The Toy Assn. trade group said it was “very con­cerned” about dis­cus­sion Fri­day that the U.S. could levy tar­iffs on the re­main­der of the Chi­nese goods that en­ter the U.S. mar­ket, about $300 bil­lion worth. Al­though tra­di­tional toys have not yet been sub­ject to the cur­rent tar­iffs, that could change if these threats be­come pol­icy, said Re­becca Mond, the trade group’s vice pres­i­dent of fed­eral gov­ern­ment af­fairs.

“That is when we would see con­sumer prices be im­pacted for toys, and that could hap­pen as soon as this hol­i­day sea­son,” she said.

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