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How will Trump's tariff battle with China affect U.S. shoppers?

2 state economists agree dispute will cause uncertainty

BY BRUCE MILLS
bruce@theitem.com
Posted 9/14/19

Will President Trump's new rounds of tariffs on Chinese imports - many of which are set to impact consumer goods now more than ever before - mean higher price tags on store shelves for Chinese-made products and other effects to the U.S. …

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How will Trump's tariff battle with China affect U.S. shoppers?

2 state economists agree dispute will cause uncertainty

Posted

Will President Trump's new rounds of tariffs on Chinese imports - many of which are set to impact consumer goods now more than ever before - mean higher price tags on store shelves for Chinese-made products and other effects to the U.S. economy?

Two state economists are a little divided on the issue, but both agree new announced tariff rounds by Trump in late August only fuel more uncertainty for the future of the U.S.' currently high-performing economy.

Joey Von Nessen, an economist with the University of South Carolina, and Rob Salvino, an economist with Coastal Carolina University in the Myrtle Beach area, spoke recently with The Sumter Item on how Trump's latest tariffs might affect the average shopper and the overall economy.

In the previous 18 months of Trump's presidency, tariff duties on Chinese imports have mainly affected industrial-input products used in the manufacturing process, according to Von Nessen and Salvino.

Those tariffs have slowed manufacturing activity in the U.S. and South Carolina in the form of decreased exports and a reduction in contingent labor through staffing firms. That employment is seasonal and isn't captured in the official unemployment rate, Von Nessen said.

He said the state's manufacturing sector is still growing this year but at a slower pace because of the tariffs.

"If you look at South Carolina as a whole," Von Nessen said, "I think an accurate way to look at the impact of the tariffs has been that it has 'blunted the momentum' of manufacturing and reduced the momentum of South Carolina's economy. But we are still growing, just not as much as we have been."

He said he's not sure if manufacturers are passing on price increases for Chinese imports to end products and that each manufacturer is probably reacting somewhat differently.

The agricultural industry has also been hurt by Trump's tariffs to date, the economists said.

Now consumer goods

New double-barrel tariffs initially announced Aug. 23 by Trump will impact many more consumer, household goods than in previous rounds during his administration.

On Sept. 1, a tariff on some Chinese imports that was slated to be 10% instead was 15%. It hit a wide range of consumer goods, including some clothing, school supplies and sporting goods.

A tariff on additional consumer products - also up from 10% to 15% - will go into effect Dec. 15. Those products include cellphones and lots of miscellaneous items, according to official lists.

Another round of double-barrel tariffs set to begin Oct. 1 was delayed this past week until Oct. 15. Those products are generally considered to be more industrial, intermediate goods, but some are consumer goods that could affect shoppers.

Will all these tariffs on household goods be passed on from U.S. importers, in some percentage form, to shoppers?

Von Nessen said he's not sure, partly because the U.S. has experienced very low inflation in the last decade, and consumers have been resistant to price increases during the timeframe. Some companies may eat the additional costs and end up reducing their bottom lines. Another key question is if prices increase, how will the consumer respond to that, he said.

Salvino thinks more tariffs on household goods will simply translate to higher prices for consumers, and with fixed incomes, they will be negatively affected.

Unlike Von Nessen, he doesn't think Federal Reserve Bank adjustments in the inflation rate affect U.S. prices as much as in previous decades because the economy has become more global now to include internet sales.

"Part of the inflation being so low is because the global economy is so much more a part of daily consumption," Salvino said. "So the consumer benefits from immense competition out there."

A trade dispute, even if not a full-scale trade war, has the negative effect of restraining that competition, he said.

"When you restrain competition, you reduce the number of alternatives for the consumer, and prices increase," Salvino said.

And with consumer spending representing about 70% of the U.S. economy, when they are affected negatively, Salvino said, that can be a causal factor for entering into a global recession, even if it may be a year or two down the road.

"And by many standards and by metrics, including unemployment rates, we are certainly at the top of the business cycle now," Salvino said. "It's just a question of how long we can stay at the top before we start to tip down in the other direction."

On a related note, Tom Donahue, the CEO of the U.S. Chamber of Commerce, also said last week that Trump's escalating trade war with China is causing economic uncertainty.

He encouraged Trump and Chinese President Xi Jinping to withdraw additional scheduled tariffs to go into effect and "return to the negotiating table in good faith."