MENU
component-ddb-728x90-v1-01-desktop

How do tariffs affect your wallet?

Tariffs are already resulting in price increases for some consumer goods. This June 6, 2015, file photo shows a customer paying for goods in Atlanta. (AP Photo/David Goldman, File)

The Commerce Department heard from more than 40 witnesses on Thursday as part of an investigation that could result in a 20 to 25 percent tariff on foreign cars and trucks sold in the United States.

Invoking national security concerns, Trump is considering the tariff to punish America's trade partners, particularly in Europe, who he has accused of "very unfair" trade practices. Analysts are warning American consumers will bear the brunt of that punishment, though it may not be immediate or direct.

In prepared testimony on Thursday, the leading advocacy group for U.S. automakers, the Alliance of Automobile Manufacturers, warned the new tariff would be "a massive tax on consumers." A 25 percent tariff on foreign cars and car parts would translate into a $6,000 price increase on an imported car and a $2,000 spike in the costs of an American-built car, argued Jennifer Thomas, the organization's vice president.

Between the proposed auto tariff, the duties on steel and aluminum, on Chinese goods and retaliatory tariffs byU.S. trade partners, producers and manufacturers have absorbed the most immediate effects of the tariffs. The question now is not if but when and how those costs will be passed on to consumers.

There is already evidence of some goods becoming more expensive for consumers, explained Jeremie Cohen-Setton, a research fellow at the Peterson Institute for International Economics (PIIE).

In January, the Trump administration enacted a 20 percent tariff on washing machines. The president recently boasted that more washing machines are now being manufactured in the United States, but the cost of those appliances across the board has increased by about 16 percent.

So far the number of goods Trump targeted for tariffs is relatively small. Taken together, the tariffs on washing machines and on the list of $50 billion worth of Chinese goods amount to less than 5 percent of U.S. imports, Cohen-Setton noted.

If Trump makes good on his threat to impose tariffs on an additional $200 billion in Chinese goods, plus the auto duties, it could add up to $800 billion, or almost a third of U.S. imports, Cohen-Setton said. "All of those effects, in terms of price increases, they will be not only felt by those who want to purchase those goods but for the economy as a whole you will see that impact."

According to a joint study by the Consumer Technology Association and the National Retail Federation, the cost of U.S. tariffs on $50 billion of Chinese imports and China's retaliatory tariffs on $34 billion in U.S. goods would be a $3 billion annual reduction in the U.S. gross domestic product.

Additional duties on $100 billion in Chinese goods (only half of what Trump proposed earlier this month) would reduce GDP by $49 billion.

Sage Chandler, the vice president for international trade at CTA, said the latest round of Chinese tariffs have already translated into higher costs and uncertainty for tech manufacturers producing everything from wireless headphones and drones to smart appliances and home healthcare products.

Some are coping by spreading the costs across different product lines, which means consumers could see price increases in items that are not directly impacted by the tariffs.

"There are lots of people out there that don't realize either the direct impact or the trickle-down impact that could hit them," Chandler said.

Even with the current and projected increase in the cost of goods, the average American consumer is not likely to feel the sting, at least not in the short-term.

"There is a risk, but not an immediate risk, per se," said David Bieri, a professor of finance and urban affairs at Virginia Tech.

The economy has continued to perform well during Trump's 18 months in office. Consumer confidence remains high, credit is easily accessible and recent polls show a majority of Americans feel optimistic about their financial situation.

Against that positive economic background, "Trump still has a lot of capital he can burn," Bieri noted. "Consumers are currently in an economically relatively resilient position, so this might not actually impact them too much."

At a certain point, the impact of the tariffs could take hold and have more serious consequences for the job market, the overall cost of goods and other core economic indicators. But it's not clear where that point is and when it might be reached.

"It's really hard to tell when it starts to kick in until you see it," said Cohen-Setton.

If the Trump administration sticks with its current tariffs and does not add duties to the auto sector or additional Chinese imports, the effects could remain localized, he continued. "If you start to go from tariffs on $90 billion to $800 billion in imports, now that becomes big enough to have an impact on inflation as a whole."

The other tipping point could come if the administration prolongs the tariffs.

Federal Reserve Chairman Jerome Powell warned earlier this week, "it will be bad for our economy" if the tariffs are in place for a long period of time or are imposed across a broad range of goods.

Typically, U.S. administrations have used tariffs as a short-term fix, to pressure partners to change their trade practices, as Trump has said he wants to do, or to protect critical, vulnerable domestic industries.

In her dealings with Commerce Department, Chandler said she hasn't been given any indication of what the end-game is or whether Trump has a long-term trade strategy.

"The tariffs, they are supposed to be temporary, and yet the administration has given absolutely zero clue about what an off-ramp would look like," she stressed. "Not only do we not have an idea about the purpose. We also don't know what their thinking is in terms of where this goes."

On Thursday, Commerce Secretary Wilbur Ross told CNBC that he expects "substantial progress" on the current trade disputes with China, the European Union, Canada and Mexico "within a year."

Ross also indicated that efforts to renegotiate the North American Treaty Organization with Canada and Mexico are back on track after stalling earlier this year. Ross said he expects the talks to resume "quickly" with members of the new Mexican government.

Trade negotiations with China are far less certain. Last week, Treasury Secretary Steve Mnuchin said the talks with Beijing had "broken down" and the administration was now waiting for China to make concessions.

President Trump's efforts to pressure the European Union to reduce some of its long-term duties on U.S. goods will be tested next week when E.U. Commission President Jean-Claude Juncker is scheduled to visit Washington. Trade issues are expected to high on the agenda.


close video ad
Unmutetoggle ad audio on off

Trending