WASHINGTON—President Donald Trump said the trade war with China wouldn’t hurt U.S. consumers, after the latest round of tariffs on Chinese imports, which mostly hit consumer goods, went into effect on Sept 1.
Trump justified tariff hikes by saying that Chinese producers, not American consumers, were bearing the cost of the tariffs.
“It was brought out very strongly today by a number of great economists that, because China has devalued their currency so much, that, in fact, they are actually paying for all of the tariffs,” Trump told reporters on Sept. 1.
Trump said China’s devaluation of its currency offsets price increases in the United States, which ends up helping U.S. consumers.
In the latest escalation of the trade war with China, Washington began imposing 15 percent tariffs on $112 billion worth of Chinese goods. The new tariffs target a wide range of goods imported from China, including clothes, boots, shoes, watches, furniture, diapers, milk, and chocolate.
In earlier rounds, Washington slapped 25 percent tariffs on $250 billion of Chinese goods, which mainly focused on industrial equipment and machinery. This time, however, the list mainly includes consumer products.
Americans may start to feel the pinch, according to some studies. J.P. Morgan suggests that the tariffs will cost the typical U.S. household $1,000 a year. The Federal Reserve Bank of New York in May estimated that U.S. households would face an additional $831 a year in costs, due to higher prices and reduced economic efficiency caused by the tariff hikes.
Some economists, however, believe the overall impact of tariffs on inflation would remain relatively muted. According to a Wall Street Journal article, these economists claim increased tariffs on Chinese goods amount to a drop in the bucket of the nation’s $21 trillion economy.
Many Americans spend more on services—such as housing, education, and health care—than on goods, hence tariffs on Chinese products are unlikely to push annual inflation up significantly.
In retaliation, China started to impose additional tariffs of 5 percent and 10 percent on a variety of American goods, including soybeans and crude oil. These extra tariffs were levied on 1,717 items of a total of 5,078 U.S. products. Beijing is expected to impose additional tariffs on the remaining items in December.
Despite tariff hikes, Trump is still optimistic about the ongoing trade talks with Beijing.
“The meeting is still on, as you know, in September. That hasn’t changed. They haven’t changed and we haven’t. We’ll see what happens,” he said.
“But we can’t allow China to rip us off anymore as a country.”
Shifting Supply Chains
New U.S. tariffs on Chinese imports might force some companies to find new suppliers. Studies show that U.S. companies have already begun shifting their supply chains away from China to other countries such as Vietnam and Taiwan.
According to a survey released last month by the U.S.-China Business Council, 17 percent of American companies operating in China said they reduced or stopped planned investment in the country in the past year. And 13 percent of respondents said they moved or planned to move operations out of China in 2019.
Trump said he wasn’t surprised to see companies leaving China as they can’t compete with the tariffs.
“A lot of companies have left China, and a lot more are leaving. And they are not doing well. They are having the worst year they’ve had, I understand, in 61 years,” he told reporters on Aug. 30.
China’s economy has worsened under the weight of the trade war and the country’s mounting debt problem. The economic growth in the second quarter slumped to its lowest level in nearly three decades. And the jobless rate in July hit a record high.
The U.S.–China trade war is also taking a toll on the Chinese manufacturing sector. Over the weekend, China’s official Manufacturing Purchasing Managers’ Index, a gauge of manufacturing activity, declined to 49.5 in August, contracting for its fourth consecutive month.