- The escalating trade war has cooled, but the world and Donald Trump’s top advisers are questioning if the temporary agreement between the U.S. and China actually was legitimate.
- Trump agreed to not increase tariffs on Chinese goods for 90 days.
- The negotiations will end up costing Americans more money.
Just like a vehicle is subject to a toll before entering a given highway, a tariff, in simplest terms, is a tax on a product coming into a country. Tariffs can raise domestic revenue and protect industries or jobs, but tariffs can stifle domestic industries and make consumers reach further into their pockets when paying for the same goods. Everything from pens to cars can be affected.
For businesses slapped with tariffs, there are a few choices to make up the losses: Slash costs, maintain costs while the bottom line takes a hit, or pass the higher costs on to customers. China, the largest exporter in the world, responded to the round of tariffs imposed by the U.S. government this summer by taxing the American goods it imports: 25 percent tariffs on $16 billion worth of goods after the U.S. imposed the same on Chinese products. Accordingly, the U.S. trade deficit reached $55.5 billion — the highest it’s been since October 2008, the Commerce Department said on Dec. 6.
Globally, effects on stocks have been mixed, but the S&P 500 and Nasdaq composite continued to drop as of Thursday, Dec. 6, and are on pace for their worst quarter in the last seven years, according to CNBC.
US and China Temporarily Agree to Tariff Cease-Fire
President Donald Trump wants to be known as the “Tariff Man” — a nickname he bestowed upon himself in a tweet on Tuesday. After a summer of tariffs being ratcheted up and up, Trump and other world leaders met at the G-20 summit in Argentina on Dec. 1 and 2. The primary topic on the agenda for the sit-down between the U.S. and China was a tariff cease-fire between the two countries.
….I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN
— Donald J. Trump (@realDonaldTrump) December 4, 2018
In the days following the truce, the White House was caught in a miscommunication gaffe surrounding the success of the meeting, which Trump had already declared a victory, with the director of the National Economic Council, Larry Kudlow, sharing with reporters that he wasn’t clear on the intricacies of the plan.
Despite the talks, U.S. industries, investors and consumers — all of whom have felt the pinch for months — are likely to continue to suffer. Wall Street sensed the shakiness and China’s willingness to acquiesce to specific terms and took a dive on Tuesday.
Some analysts, economists and scholars are reluctant to hang a price tag next to the tariffs. It’s an incorrect assumption that consumers carry the full cost of the tariffs because it’s the decision of each retailer whether to absorb the cost of pricier materials.
Here’s a breakdown of the types of tariffs and what’s at stake for the U.S. and your wallet.
Steel and Aluminum Tariffs
- Countries affected in addition to the U.S.: Canada, Mexico and the European Union
- Cost impact: A 25 percent tariff on all imported steel and 10 percent on all imported aluminum
The Rust Belt was partly responsible for electing Trump in 2016. Voters living in areas from western New York throughout the Midwest were galvanized by his campaign promises to revive the economically fragile region. But almost two years later, Trump effectively killed the World Trade Organization, according to the Council on Foreign Relations, by imposing steel and aluminum tariffs, which greatly contributed to the economic strife of the struggling region.
Everything from home appliances and food to airplanes, cars and construction materials depend on these important metals. Since the tariffs were introduced earlier this year, U.S. allies and trade partners have responded with tariffs on consumer products like food, cigarettes, denim and motorcycles.
On Aug. 10, Trump said he would double the tariffs on steel and aluminum imports from Turkey, which is facing an economic crisis. The tariffs on Turkish steel and aluminum are 50 percent and 20 percent, respectively.
The Trump administration is applying pressure on Turkey for imposing duties on $1.8 billion in U.S. goods in June for the detention of American pastor Andrew Brunson, and because it objects to Turkey’s plan to acquire a Russian missile defense system, CNBC reported. U.S. lawmakers fear that the transaction could expose weaknesses in American-made aircraft, and that Turkey could share those vulnerabilities with Russia.
What Trump tweeted about steel and aluminum tariffs:
Our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world. We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!
— Donald J. Trump (@realDonaldTrump) March 1, 2018
Consumer Goods Tariffs
- Countries affected in addition to the U.S.: Canada and China
- Cost impact: As much as $100 million for a single company
Consumer goods company Newell Brands, which produces Sharpies and candles, among other items, predicted the increased tariffs could cost the company $100 million. The company’s stock has fallen 20 percent so far this year, and it’s prepared to raise the price on the following products:
- Sharpie pens
- Yankee Candles
- Rubbermaid products
As a countermeasure to U.S. tariffs on Canadian products, the Department of Finance Canada released a long list of consumer goods originating in the U.S. that are subject to a 10 percent surtax, which started July 1, 2018, including but not limited to:
- Strawberry jam
- Orange juice
- Ketchup, mayonnaise and other sauces
- Toilet paper
Since the measure was instituted to September, Canada has raked in nearly $300 million in surtaxes.
Clothing is another major category of consumer goods affected by tariffs; China is one of the largest suppliers of apparel in the U.S. It will likely continue to be, regardless of whether the two countries can meet a long-term trade agreement.
What Trump tweeted about tariffs:
..Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated, much by the Obama Administration, while at the same time reducing taxes for our people. At minimum, we will make much better Trade Deals for our country!
— Donald J. Trump (@realDonaldTrump) August 5, 2018
Auto Industry Tariffs
- Countries affected in addition to the U.S.: Canada, China, Finland, Germany, Hungary, Italy, Japan, Mexico, Slovakia, South Africa, South Korea, Spain, Sweden, Turkey, United Kingdom
- Cost impact: 25 percent tariff on roughly $200 billion in foreign-made cars in 2018, as reported by The Washington Post; 25 percent tariffs on $16 billion worth of Chinese products that cover both fuel and vehicles
On July 1, China lowered the import tariff from 25 percent for passenger cars and 20 percent on trucks, to 15 percent on automobiles and auto parts. However, in a response to Trump’s 27.5 percent tariff on Chinese car imports and 25 percent on trucks, it subsequently imposed a 40 percent raise on all American auto imports.
For American drivers, this means that the same imported vehicles could cost about $240 more in manufacturing costs because of tariffs on imported aluminum and steel. When extended to consumers, the price of a Honda Civic or a similar entry-level car could increase between $1,408 and $2,057; the price of a new compact SUV or crossover vehicle could jump by $2,093 to $3,066; and upscale compact SUVs and crossovers could cost $4,708 to $6,972 more, according to the Peterson Institute for International Economics.
What Trump tweeted about tariffs:
Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that – and everybody’s talking! Remember, we are the “piggy bank” that’s being robbed. All will be Great!
— Donald J. Trump (@realDonaldTrump) July 24, 2018
- Countries affected in addition to the U.S.: Canada, China, Mexico and the European Union
- Cost impact: A $12 billion emergency aid package to U.S. farmers
Farmers in the breadbasket of America have been so deeply affected by the tariffs that they expected to receive a $12 billion emergency aid package from the U.S. Department of Agriculture beginning in September. In a release from the USDA, the bailout was described as a short-term strategy to give the Trump administration time to work on a longer-term solution. As of November, American farmers are still waiting for their windfall and fear they will be stiffed by the government.
The New York Times reports that just $838 million has been paid so far, with the government unlikely to supplement additional funds after the $12 billion cap. Eighty-four farms in the Midwest filed for bankruptcy from July 2017 to July 2018 — more than double the bankruptcies filed during the same period between 2013 and 2014.
American farmers feed the country but also depend on being able to sell overseas. Imposed tariffs have driven up the cost of crops, including soybeans and sorghum, livestock products like milk and pork, and many fruits, nuts and other specialty crops. Other countries have taken note of this.
China, for example, has mostly halted the import of U.S.-grown soybeans and is now concentrating on growing its own soybeans, though it could be years before domestic product volume matches American imports.
What Trump tweeted about tariffs and farmers:
Farmers have been on a downward trend for 15 years. The price of soybeans has fallen 50% since 5 years before the Election. A big reason is bad (terrible) Trade Deals with other countries. They put on massive Tariffs and Barriers. Canada charges 275% on Dairy. Farmers will WIN!
— Donald J. Trump (@realDonaldTrump) July 20, 2018
- Country affected in addition to the U.S.: China
- Cost impact: 25 percent tariffs on $50 billion worth of Chinese goods
From the smartphone in your pocket to the computer on your desk, most of the technology products keeping the world running are imported from China. But China also imports around $130 billion worth of American-made goods each year. Although materials like steel and aluminum are used to manufacture phones, cameras and computers, technology products can be subject to separate technology tariffs.
In May 2018, the White House announced tariffs on Chinese high-tech goods “containing industrially significant technology.” This decision was a response to “China’s unfair trade practices related to the forced transfer of American technology and intellectual property,” the Office of the United States Trade Representative said in a statement.
It turns out, American tech companies are collateral damage at the center of the trade war. Since July, when the Chinese tariffs went into effect, the tech industry has paid $349 million more on imported Chinese goods compared to the previous year, CNBC reported last month.
Trump Trade Talks With European Commission Result in Tariff Hold
On July 25, 2018, President Trump and European Commission President Jean-Claude Juncker met to work on eliminating tariffs and other barriers on trade, according to CNN. They agreed to hold off on non-auto tariffs that threatened to devolve into a trade war for the time being.
However, Cecilia Malmstrom, European Union trade commissioner, paid a visit to the U.S. last month to meet with U.S. Trade Representative Robert Lighthizer in an effort to cool the escalating trade war. Malmstrom threatened that the EU was prepared to strike back with tariffs on “all kinds” of products if the U.S. did not cooperate with dropping auto tariffs.
More on the Economy
- Cities Where You Can Realistically Live on Minimum Wage
- Ways 9/11 Impacted the US Economy
- Apple and Other Companies Dodging Trump’s Tariffs
- Watch: Best and Worst States for the Middle Class
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Stephanie Barbaran contributed to the reporting for this article.