March 23, 2018 8:38 pm
The last time a trade war happened in the U.S., things didn’t go well for the economy. Will history repeat itself as Trump puts a tariff on steel and aluminum? Here are the facts. Just the FAQs
President Trump’s move to impose hefty tariffs on Chinese imports and retaliation threats from China set off fresh worries Friday about higher prices for American consumers and steep sales losses for U.S. businesses.
Trump said this week he’ll slap 25% tariffs on $50 billion to $60 billion in Chinese exports to the U.S., including aerospace, information and communication technology, and machinery. The move is aimed at countering Chinese cyber and intellectual property theft of U.S. technology. It also tries to push back against China’s demands for technology transfers from U.S. companies in return for access to China’s market.
The Chinese government, in turn, said it would hit U.S. shipments to China with $3 billion in tariffs, affecting goods such as pork, aluminum pipes, steel and wine.
However, those duties appear to be in response to the 25% sweeping tariff on imported steel and 10% on aluminum that Trump announced this month, says Gary Hufbauer, senior fellow at the Peterson Institute for International Economics. He expects China to impose additional, more damaging tariffs on U.S. goods comparable to the $60 billion Trump announced this week.
Still, “if this is all there is, it’s a modest impact” on the U.S. economy, says Mark Zandi, chief economist of Moody’s Analytics.
He estimates the conflict would trim economic growth by about a two-tenths of a percentage point this year and a tenth next year, including the effects from the steel and aluminum duties. The economy has been projected to grow 2.5% to 3% during that period. The bigger risk, he says, is that the current skirmishes mushroom into a global trade war.
U.S. officials have said the latest tariffs will be imposed in a way that minimizes the impact on consumers. They also could be lessened. Trump says he’ll seek comment from business groups before finalizing the proposal.
But Hun Quach, vice president of international trade for the Retail Industry Leaders Association, said: “There’s no way to impose $50 billion in tariffs on Chinese imports without having a negative impact on American consumers. Make no mistake, these tariffs may be aimed at China, but the bill will be charged to American consumers who will pay more at the checkout for the items they shop for every day.”
And Matthew Shay, CEO of the National Retail Federation, says a trade war will erase the benefits of the recent tax cuts “and result in higher prices for a wide range of consumer products and basic household goods.”
The tariffs could affect wildly popular imports such as smartphones and laptops. Hufbauer says retailers would likely absorb some of the cost increase, resulting in about a 15% price hike for shoppers.
Amazon, which buys in bulk and operates on thin margins, could pass along only a 1% or 2% higher price to consumers, says Daniel Ives, chief strategy officer and head of technology research at GBH Insights.
Similarly, tariffs on imported parts such as semiconductors might raise the price of a laptop by only about 3%, Hufbauer says.
Other retailers could be affected as well, depending on the final list of 1,300 products that the U.S. has said it will target.
“A family of four will end up paying about $500 more to buy (clothing, shoes, fashion accessories and travel goods) every year” if those products are subject to 25% tariffs, the American Apparel and Footwear Association says.
Retaliatory tariffs from China, meanwhile, could especially hurt American farmers.
China is the world’s top soybean importer, with the U.S. providing close to 60% of the commodity. And the country is the second-largest purchaser of U.S. pork. Growing talk about a trade war has worried Iowa farmers. The state is the nation’s largest corn and pork producer and second-largest soybean grower.
“The Chinese have been clear they will respond and apply pressure,” says Kirk Leeds, CEO of the Iowa Soybean Association.
A retaliatory tariff on U.S. agricultural products would hurt farmers at a time they’re already struggling financially. Earnings are expected to fall 6.7% this year to $59.5 billion, the U.S. Department of Agriculture projects. It would be about half of the nation’s 2013 record high earnings.
Bill Shipley, a Nodaway, Iowa, farmer and the soybean association president, says Chinese soybean buyers and users don’t want to see a trade war.
“They want to continue buying soybeans from the United States,” Shipley says. “But sometimes, things are dictated by our government that are out of our control.”
China’s soybean imports are expected to grow nearly 7% to 100 million metric tons by 2019, USDA projections show.
“Our ability to grow beans for China is invaluable,” Shipley says.
Apple growers also are nervous.
“The U.S. Apple industry worked very hard over the years and in 2015 finally achieved full access to the Chinese market, just as China has access to our market,” says Jim Bair, CEO of the U.S. Apple Association. “We are competing, and winning, with our exports to China growing nicely from zero to about 2.5 million boxes per year.”
He added, “China’s retaliatory response to U.S. tariffs are just the latest chapter in a long and sad story where U.S. Apple growers get hurt in a fight we didn’t start and in which we have no interest.”
A decline in industrial blue chips like Boeing and Caterpillar pulled down the Dow and S&P 500 Monday. Fred Katayama reports. Video provided by Reuters Newslook
Contributing: Mike Snider
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