What Do Tariffs, Sanctions, And The Ensuing Trade Wars Mean To The American Consumer?

by Ruby Henley

Is the United States ‘trade bullying’ like China says?  If so, what is this going to do to the average American – like you and me?

Tariffs have a direct effect on all American clothing and many of the people and businesses we work with.

A tariff is a tax on goods imported into a country. This tax is a percentage of the total cost of the product. which includes insurance and freight.  It goes without saying a tariff will raise prices on imported goods.

Tariffs are waived when countries form free trade agreements with each other. Businesses use trade agreements as market strategies – they target exports to countries their own country has favorable trade agreements with to minimize cost.

Thus, it is ideal if we can form free trade agreements with other countries, but the United States has been taken advantage of for a very long time.

 

When tariffs are applied to a foreign product, the result is the product becomes more expensive and allows domestic makers an edge, because they don’t have to pay the tax. This should protect and support domestic industries in an effort to increase the demand for their products, which drives their business and creates new jobs.

I know President Trump is smart, and he trying to help American workers…so I am hoping American consumers will not be caught in the middle.

This is a strategy governments use to bring industries back to life that are struggling.

 

Critics say tariffs often result in trade wars. The cost of tariffed products goes up – leaving companies either to absorb the increased cost or pass it on to consumers.

The FEAR is that this will distort trade and create products that are too expensive for consumers, decreasing demand and causing job loss on both sides.

Another concern revolves around whether domestic industries can meet the increases in demand if the tariffs accomplish their goal and funnel business to domestic makers.

These are exactly my fears, and I have already noticed the prices in toys going up.  This concerns me with Christmas around the corner.

Parents had better buy now.  I hate to be negative, but better be safe than sorry.

 

Let’s look at some examples American consumers might see –

  1. The steel and aluminum tariffs could affect automobiles,
  2. And canned goods,
  3. I am sure you can think of more.

 

For manufacturers with global supply chains, who depend on competitive pricing to manufacture their goods, tariffs will increase costs.

For domestic producers of tariffed products, like the American steel industry, the recent tariffs are  positive news as they signal an increase in demand.

 

TRADE WARS BETWEEN THE UNITED STATES AND CHINA –

China and the United States are locked in an ongoing trade war as each country has introduced tariffs on goods traded with the other. US President Donald Trump had promised in his campaign to fix China’s “longtime abuse of the broken international system and unfair practices”.

Starting in January 2018, the U.S imposed a tariff on solar panel imports, most of which are manufactured in China.

On July 6, the U.S. specifically targeted China by imposed 25% tariffs on $34 billion of imported Chinese goods as part of Trump’s tariffs policy, which then led China to respond with similarly sized tariffs on U.S. products.

A tariff on an additional $16 billion of Chinese imports was added in mid August, with China responding proportionately.

A further tariff on $200 billion of Chinese goods is to go into effect on September 24 to which China plans to respond to with tariffs on $60 billion of US goods.

The Trump administration said the tariffs were necessary to protect intellectual property of U.S. businesses, and to help reduce the U.S. trade deficit with China.

The U.S. administration is relying partly on Section 301 of the Trade Act of 1974 to prevent what it claims are unfair trade practices and theft of intellectual property.

This gives the president the authority to unilaterally impose fines or other penalties on a trading partner if it is deemed to be unfairly harming U.S. business interests.

Trump had already, in August 2017, opened a formal investigation into attacks on the intellectual property of the U.S. and its allies, the theft of which cost the U.S. alone an estimated $225–600 billion a year.

 

The United States International Trade Commission publishes all tariffs in the document “Harmonized Tariff Schedule of the United States”

Generally, tariffs depends on exporting countries which are treated in one of three different groups:

  1. Privileged countries such as most developing countries and countries with trade agreements such as NAFTA. Tariffs here are zero for most products.
  2. “Rate of duty column 2” is enhanced tariffs for legal trade with Cuba and North Korea
  3. All other countries.

The tariffs are typically given as a percentage of value, but it can also be given per Kg weight or per unit.

 

Here Are Some Tariff Announcements –

  1. President Trump placed a 30% tariff on foreign solar panels on January 23, 2018, to be reduced to 15% after four years.  China, the world leader in solar panel manufacture, decried the tariffs. That same day, tariffs of 20% were placed on washing machines for the first 1.2 million units imported during the year. In 2016, China exported $425 million worth of washers to the United States.
  2. President Trump asked the United States Trade Representative (USTR) investigate applying tariffs on US$50-60 billion worth of Chinese goods, on March 22.  He relied on Section 301 of the Trade Act of 1974 for doing so, stating that the proposed tariffs were “a response to the unfair trade practices of China over the years”, including theft of U.S. intellectual property.  Over 1,300 categories of Chinese imports were listed for tariffs, including aircraft parts, batteries, flat-panel televisions, medical devices, satellites, and various weapons.
  3. China responded on April 2 by imposing tariffs on 128 products it imports from America, including aluminum, airplanes, cars, pork, and soybeans (which have a 25% tariff), as well as fruit, nuts, and steel piping (15%).
  4. On April 5, Trump responded saying that he was considering another round of tariffs on an additional $100 billion of Chinese imports as Beijing retaliates. The next day the World Trade Organization received request from China for consultations on new U.S. tariffs.
  5. Vice Premier Liu He, top economic adviser to Communist Party general secretary Xi Jinping, visited Washington from May 15 to 19 for further trade talks.
  6. It was reported on May 20 that Chinese officials had agreed to “substantially reduce” America’s trade deficit with China by committing to “significantly increase” its purchases of American goods.
  7. As a result, Treasury Secretary Steven Mnuchin announced that “We are putting the trade war on hold”. White House National Trade Council Director Peter Navarro, however, said that there was no “trade war,” but that it was a “trade dispute, fair and simple. We lost the trade war long ago.”
  8. The White House announced on May 29 that it would impose a 25% tariff on $50 billion of Chinese goods with “industrially significant technology;” the full list of products affected to be announced by June 15.
  9. It also planned to impose investment restrictions and enhanced export controls on certain Chinese individuals and organizations to prevent them from acquiring U.S. technology.
  10. China said it would discontinue trade talks with Washington if it imposed trade sanctions.”
  11. On June 15, Trump declared in a short White House statement that the United States would impose a 25% tariff on $50 billion of Chinese exports.
  12. $34 billion would start July 6, with a further $16 billion to begin at a later date.
  13. China’s Commerce Ministry accused the United States of launching a trade war and said China would respond in kind with similar tariffs for US imports, starting on July 6.
  14. Three days later, the White House declared that the United States would impose additional 10% tariffs on another $200 billion worth of Chinese imports if China retaliated against these U.S. tariffs.
  15. The list of products included in this round of tariffs was released on July 11 and was set to be implemented within 60 days.
  16. China retaliated almost immediately, threatening its own tariffs on $50 billion of U.S. goods, and claimed the United States had “launched a trade war.” Import and export markets in a number of nations feared the tariffs would disrupt supply chains which could “ripple around the globe.”
  17. American tariffs on $34 billion of Chinese goods came into effect on July 6, 2018.
  18. China imposed retaliatory tariffs on US goods of a similar value. The tariffs accounted for 0.1% of the global gross domestic product.
  19. On July 10, U.S. released an initial list of the additional $200 billion of Chinese goods that would be subject to a 10% tariff.
  20. China vowed to retaliate with additional tariffs on American goods worth $60 billion annually two days later.
  21. On August 8 the Office of the United States Trade Representative published it’s finalized list of 279 Chinese goods, worth $16 Billion, to be subject to a 25% tariff from August 23.
  22. China responded with its own tariffs of equal value when the American tariffs were implemented on August 23.
  23. On August 14 China filed a complaint with the World Trade Organisation (WTO), claiming that US tariffs on foreign solar panels clash with WTO ruling and have destabilised the international market for solar PV products. China claimed the resulting impact directly harmed China’s legitimate trade interests.
  24. US Treasury Under Secretary David Malpass and Chinese Commerce Vice Minister Wang Shouwen met on August 22 in Washington DC in a bid to open up dialogue in response to the intensifying trade war, yet discussions ended with no resolution.
  25. By August 23, US implemented a further 25% of tariffs on $16 billion of goods as promised, which was reciprocated by China.
  26. China filed a new WTO complaint against the US as a result of this tariff escalation.
  27. On September 17 the US announced its 10% tariff on $200 billion worth of Chinese goods would begin on September 24, increasing to 25% by the end of the year.
  28. They also threatened tariffs on an additional $267 billion worth of imports if China retaliates, which China promptly did on September 18 with 10% tariffs on $60 billion of US imports.
  29. So far, China has either imposed or proposed tariffs on $110 billion of U.S. goods, representing most of its imports of American products.

 

What have the reactions been in the United States by the markets and manufacturers?

  1. U.S. commerce secretary Wilbur Ross said that the planned Chinese tariffs only reflected 0.3% of U.S. gross domestic product, and press secretary Sarah Huckabee Sanders stated that the moves would have “short-term pain” but bring “long-term success.”
  2. Nucor’s John Ferriola said that even with the tariffs on steel, the cost of an average $36,000 car would go up about $160, less than 1/2 of 1%, while a can of beer would only cost an extra penny more.
  3. After president Trump imposed tariffs against a number of allies, including Mexico, Canada and countries in the EU, G7 finance leaders strongly condemned the tariffs and planned retaliating with tariffs of their own.
  4. By early July 2018, there were negative and positive results already showing up in the economy as a result of the tariffs, with a number of industries showing employment growth while others were planning on layoffs.

 

How have the markets reacted?

  1. In anticipation of tariffs going into effect, stock prices in the U.S. and China sustained significant losses for four to six weeks prior.
  2. Trade war fears had led to a bear market in China where by late June the total value of the country’s stock markets was 20% lower than it had been at the beginning of 2018 when it reached record levels.
  3. The Japanese Nikkei also suffered a “three-week pullback”.
  4. On July 6, when the tariffs went into effect, markets rebounded and rallied due to positive jobs report in the U.S.
  5. Asian markets similarly rebounded, ending the day in a high note. According to the Associated Press, the positive reaction to the tariffs in U.S. and Asian markets was because of an end to uncertainty and, according to Investor’s Business Daily, because “markets had largely priced in the impact”.

 

Following announcements of escalation of tariffs by the U.S. and China, representatives of several major U.S. industries expressed their fears of the effects on their businesses.

Organizations critical of the intensifying trade war included National Pork Producers Council, American Soybean Association, and Retail Industry Leaders Association.

Several mayors representing towns with a heavy reliance on the manufacturing sector also expressed their concerns.

In September, a business coalition announced a lobbying campaign called “Tariffs Hurt the Heartland” to protest the proposed tariffs.

Proponents of the increased U.S. tariffs included Scott Paul, president of the Alliance for American Manufacturing.

In conclusion, I think President Trump has labored with the job of bringing America back from the brinks of nonexistence.  We had sled down the ladder of the Obama Administration, and he has had to pull us back up. I think for the most part, he has done an excellent job.

 

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