Columns share an author’s personal perspective and are often based on facts in the newspaper’s reporting or from personal experience.
More than $100 billion in new U.S. tariffs on Chinese imports took effect on Sept. 1, 2019, impacting many consumer goods including apparel, footwear, electronics and food. President Trump announced the new tariffs in mid-August of last year, after China raised duties on $75 billion in U.S. goods. Many of the tariffs put in place by China impact U.S. agricultural products, placing a strain on American farmers, as well as manufacturers and distributors that supply the farmers.
All things with U.S.-China trade are fluid, however. In an effort to rein in the more than 18-month trade war, the two countries struck a modest Phase One trade deal in the middle of January 2020. The deal details a $200 billion increase in Chinese purchases of U.S. manufacturing, energy and agricultural goods over two years. Under the agreement, the Trump administration removed tariffs initially set to take effect in December 2019, and agreed to cut duties on $120 billion in products to 7.5 percent. U.S. tariffs of 25 percent on $250 billion worth of Chinese goods put in place earlier will remain unchanged and could be rolled back as part of a Phase Two negotiation.
Since the onset of the coronavirus, there has been speculation that the U.S. might remove tariffs on Chinese imports if the deadly disease begins to weigh heavily on China’s economy. This theory was dispelled by U.S. Treasury Secretary Steven Mnuchin on March 3, stating that the Trump administration is not planning to suspend tariffs on Chinese goods as the coronavirus weighs on the global economy.
Phase One of the trade deal is already seeing fissures. China has signaled that it will not need to purchase the same level of energy supplies as it has committed to buy under the deal from the U.S. because of falling demand from the coronavirus crisis. If China is unable to honor its side of the deal with regards to purchases, a Phase Two deal may be unlikely.
On the heels of closing the Phase One trade deal, the Trump administration enacted new tariffs on steel and aluminum products in early February. The tariffs cover nearly $500 million of goods. The new tariffs are designed to help alleviate pressure on some manufacturers in the key election battleground states of Pennsylvania, Wisconsin and Michigan where manufacturing plays a large role. However, the new tariffs will hurt industries like construction that purchase the steel and aluminum products and are now faced with higher purchasing costs.
The impact of prior tariffs, as well as new tariffs, has already filtered into the U.S. economy. The U.S. Gross Domestic Product (GDP) grew at an annual rate of 2.1 percent in the fourth quarter, and grew 2.3 percent for the year, slower than the rate of 2.9 percent in 2018 and 2.4 percent in 2017. The U.S. Bureau of Economic Analysis indicated that the deceleration was attributed to tariffs and a global economic slowdown.
Moreover, the Institute for Supply Management purchasing managers index report for January of 2020 showed a decrease in new export orders in nonmetallic mineral products, fabricated metal products, transportation equipment, and machinery—with tariffs identified as the main culprit for these declines.
While industrial manufacturers, distributors and retailers incur higher costs, it is the consumer that pays as costs ultimately get passed down along the supply chain. The U.S. economy is roughly 70 percent driven by consumers. The higher tariffs raise prices for consumers on everything from phones and video consoles to apparel and shoes. Tariffs also increase the cost of producer goods and depress economic benefits of competition, which in turn inhibits economic growth.
Andrew Bostian, ASA, MST is a director with blumshapiro. He can be reached at firstname.lastname@example.org. To learn more visit www.blumshapiro.com.
Powered by WPeMatico