U.S. consumers could start seeing price hikes on a wide variety of goods made in China after the United States began collecting a 10% tariff Tuesday on all Chinese imports, reigniting a trade war between the two countries that’s at risk of accelerating.
President Donald Trump said he was instituting the tariffs until China took action to reduce the flow of fentanyl into the United States. China responded by announcing plans to put its own tariffs next week on certain U.S. products, including coal, oil, agricultural machinery and pickup trucks.
While the 10% tariff is smaller than the 60% tariff Trump had threatened during his campaign, investors and industry analysts expect the added cost to have a ripple effect across certain industries that rely heavily on Chinese manufacturing. It has also raised fears among retailers that it could be just the opening salvo in a prolonged tit-for-tat with China.
“There’s just a lot of uncertainty about how to price goods, because it’s a 10% tariff now on top of whatever duties we’re already paying, but what will it be a month from now or two months from now?” said Matt Priest, president of the Footwear Distributors and Retailers of America. Priest said he was hearing a lot of confusion from companies at a trade show he was attending Tuesday in New York.
“It’s almost impossible to confidently cost your goods without knowing where this duty plane will land,” he said.
Footwear
With more than half of footwear sold in the United States coming from China, Priest said, consumers are likely to see an increase in shoe prices, though some of the cost will be absorbed by retailers and other businesses throughout the supply chain. The typical sneaker already has around a 20% tariff on it, including a 7.5% tariff added during Trump’s last term. With the additional 10% tariff, a midrange sneaker could ultimately have $18 to $20 added to the total cost, he said.
“This is a movie we’ve seen before, and it doesn’t bring jobs back to the U.S., and it does raise costs, so it’s a challenge for us to see the end game or the point,” Priest said. “We do want to work with the administration to tamp down inflation — that was the president’s mandate, and we agree with it — but this is not the way to go about doing that.”
Tariffs are paid by the U.S. company importing the goods from China, such as retailers or wholesalers, when those goods arrive at U.S. ports. Those companies will then have to decide whether to pass the higher costs on to consumers by raising prices or absorb the cost by taking lower profits or trying to cut costs elsewhere.
China’s retaliatory tariffs on around $24 billion worth of U.S. products could also have an impact on U.S. workers if companies see significant declines in sales from Chinese customers.
China's countermoves
China also said it was launching an antitrust investigation into Google and took aim at two other U.S. companies: gene sequencing maker Illumina Inc. and PVH Group, the owner of the Calvin Klein and Tommy Hilfiger brands, placing them on a blacklist limiting their ability to sell their products there.
But China’s moves were more limited in scope than some companies had feared: They apply to around 14% of U.S. exports to China, while Trump’s tariffs apply to all goods sold in the United States from China.
That could be an effort by China to send a signal that it is willing to target specific U.S. companies without escalating a trade war too quickly.
“The measures are fairly modest, at least relative to U.S. moves, and have clearly been calibrated to try to send a message to the U.S. (and domestic audiences) without inflicting too much damage,” Julian Evans-Pritchard, head of China economics at Capital Economics, wrote in an analysis note. “But there is a risk that retaliation backfires by encouraging Trump to escalate tariffs further.”
On the campaign trail, Trump made tariffs central to his plan to revive the U.S. economy, arguing that putting significant duties on imports would encourage companies to move their manufacturing plants to the United States and protect industries from cheaper overseas competition. Trump has also proposed using revenue from tariffs to pay for other policy priorities.
But economists and businesses have warned that tariffs would be likely to have little effect on driving manufacturing back to the United States because of the costs, logistics, regulatory barriers and lack of labor many industries would face in moving production stateside. A study of Trump’s tariffs during his first term found they reduced overall manufacturing employment by driving up costs for companies importing parts and materials from China.
Ahead of Trump’s election, companies had been warning that they would be likely to raise prices in response to the tariffs if Trump carried through on his threats, including AutoZone, Columbia Sportswear and Black and Decker. None of the companies responded to requests for comment Tuesday on whether they planned to go through with those plans.
“If we get tariffs, we will pass those tariff costs back to the consumer, and we’ll pass them through,” AutoZone CEO Philip Daniele told investors in September.
Clothing
Consumers are also likely to see higher prices on clothing, with about 30% of U.S. apparel coming from China. The tariffs could cause clothing prices to rise as much as 2% for some brands, according to Bloomberg Intelligence estimates.
Personal health and beauty products could feel the impact of the tariffs, as well. Cosmetics maker e.l.f. Beauty, which makes the vast majority of its products in China, may have to increase prices by around 3% unless it is able to offset those costs by negotiating concessions from suppliers or shifting more production out of China, Morgan Stanley analyst Dara Mohsenian said in a note to clients.
Tech and drug prices
Apple is among the technology companies most at risk from the tariffs with the vast majority of iPhones made in China.
During Trump’s first term, Apple was able to mostly avoid having to pay Trump’s tariffs by receiving government waivers. While Apple hasn't commented on how it will respond to the latest round of tariffs, analysts expect it to have to raise prices to compensate for the higher costs.
The tariffs could also drive up drug prices. About half of generic drugs taken in the United States are made entirely overseas, and China is increasingly playing a role in making those ingredients, according to data from United States Pharmacopeia, a nonprofit group that focuses on the safety of the drug supply chain.
This story first appeared on chof360.com. More from NBC News:
