The United States imposed a 10% tariff on all Chinese imports on Tuesday, reigniting a trade war between the two nations that could potentially worsen and result in price increases for American customers on a wide range of Chinese-made items.
President Donald Trump declared that he would impose the tariffs unless China acted to stop the flow of fentanyl into the US.In response, China declared that it will impose its own tariffs on a number of American goods the next week, including oil, coal, pickup trucks, and agricultural equipment.
Investors and industry analysts anticipate that the additional expense will have a knock-on effect on several companies that mostly depend on Chinese manufacturing, even though the 10% tax is less than the 60% tariff Trump had warned during his campaign. Additionally, businesses are concerned that it might be the first shot in a protracted battle with China.
Because there is a 10% tariff on top of whatever charges we are presently paying, there is just a lot of ambiguity around how to price items. What will the duty be in a month or two? The Footwear Distributors and Retailers of America’s president, Matt Priest, said. While attending a trade show in New York on Tuesday, Priest reported that he was getting a lot of uncertainty from businesses.
Without knowing where this duty plane would land, it’s nearly hard to cost your items with confidence, he said.
Footwear
According to Priest, customers would probably see an increase in shoe costs because over half of the footwear sold in the US is imported, however retailers and other companies along the supply chain will bear some of the expense. The average sneaker is already subject to a 20% duty, which was increased by 7.5% during Trump’s previous administration. According to him, the final cost of a midrange sneaker might increase by $18 to $20 due to the additional 10% duty.
It’s difficult for us to comprehend the big picture or the point of this movie, which we’ve seen before, because it doesn’t create jobs in the United States and it increases expenses, Priest added. We agree that the president’s mandate to reduce inflation is something we want to cooperate with the government to achieve, but this is ineffective.
When the goods reach American ports, the U.S. entity that imported them from China—such as merchants or wholesalers—pays the tariffs. These businesses will then need to determine whether to absorb the cost by reducing profits or attempting to reduce expenses elsewhere, or to pass the increased costs on to customers by raising prices.
If businesses experience sharp drops in sales from Chinese clients, China’s retaliatory tariffs on about $24 billion worth of American goods may also affect American jobs.
China’s countermoves
In addition, China announced that it was opening an antitrust probe against Google and targeted two other American businesses: PVH Group, the owner of the Calvin Klein and Tommy Hilfiger brands, and gene sequencing manufacturer Illumina Inc., putting them on a blacklist that would restrict their sales in China.
However, the extent of China’s actions was less extensive than some businesses had anticipated; Trump’s tariffs cover all Chinese goods sold in the US, while China’s actions only affect about 14% of US shipments to China.
That might be an attempt by China to indicate that it is prepared to target certain American businesses without hastening the escalation of a trade war.
Julian Evans-Pritchard, head of China economics at Capital Economics, stated in an analysis note that the measures are quite mild, at least in comparison to U.S. actions, and have been clearly calibrated to try to convey a message to the U.S. (and domestic audiences) without causing too much harm. However, retaliation could backfire by inciting Trump to raise tariffs even more.
Trump emphasized tariffs as a key component of his strategy to boost the American economy during the campaign, claiming that imposing high import taxes would incentivize businesses to relocate their manufacturing facilities to the US and shield sectors from lower-priced competition abroad. Trump has also suggested funding other policy initiatives with trade income.
However, companies and economists have cautioned that due to the prices, logistics, labor shortages, and regulatory obstacles many industries would encounter when relocating production domestically, tariffs are unlikely to have much of an impact on bringing manufacturing back to the US. According to a research, Trump’s tariffs during his first term increased the cost of importing components and materials from China, which in turn decreased manufacturing employment overall.
Companies like AutoZone, Columbia Sportswear, and Black & Decker had warned ahead of Trump’s victory that if he followed through on his threats, they would probably raise prices in reaction to the tariffs. Requests for comment on Tuesday regarding whether the companies intended to carry out those plans were not answered.
Philip Daniele, the CEO of AutoZone, informed investors in September that if tariffs are imposed, the price of the levies will be passed on to the customer.
Clothing
Given that over 30% of American clothing is imported from China, consumers should likewise expect to pay more for their clothes. According to projections from Bloomberg Intelligence, the tariffs may result in a 2% increase in garment prices for certain brands.
The tariffs may also have an effect on personal health and cosmetics. According to a note sent to clients by Morgan Stanley analyst Dara Mohsenian, cosmetics manufacturer e.l.f. Beauty, which produces the great majority of its goods in China, may have to raise prices by about 3% unless it can offset those costs by negotiating concessions from suppliers or moving more production out of China.
Tech and drug prices
Since the great majority of iPhones are built in China, Apple is one of the tech businesses most at danger from the tariffs.
Apple was mostly exempt from paying Trump’s tariffs during his first term thanks to government concessions. Analysts predict that Apple will need to increase pricing to offset the increased costs, even though the company has not yet stated how it will react to the most recent wave of tariffs.
Drug prices may rise as a result of the tariffs. According to data from the United States Pharmacopeia, a nonprofit organization that focuses on the safety of the drug supply chain, China is increasingly involved in the production of the ingredients for around half of the generic medications administered in the United States, which are created entirely overseas.