All wars have casualties.
And the casualties linger after the clashes stop.
This will likely be the case as the U.S./China trade war continues, and after it eventually ends.
A new round of tariffs from the President Donald Trump administration gets set to bow next month. As has been widely reported, in early August, Trump tweeted that he would look to impose tariffs on $300 billion of items. Those tariffs could rise to 25 percent.
But this time around, where the impact had so far been muted, the U.S. consumer could be collateral damage. That’s because the looming volley will include a range of items commonly seen on store shelves, such as consumer electronics and toys. By way of example, the American Apparel & Footwear Association has estimated that 70 percent of all footwear would be affected by the new tariffs.
By impacted, we mean of course that prices will go up, perhaps rather quickly. It’s well known that some manufacturers have tried to shift production away from China, but supply chains do not turn on a dime. In any event, at least some of those supply chains rely on parts or various components that are, in turn, sourced from China, so a ripple effect ripples seemingly no matter the strategy.
To get a sense of what the pricing impacts would be to the end consumer, Trade Partnership Worldwide has calculated that toys could cost 17 percent more, and clothing and a large swath of electronics by mid-single digit percentages. In one anecdote per The Washington Post, Peter Bragdon, chief administrative officer of Columbia Sportwear, has said, “Some prices will go up. We don’t know exactly which ones or by how much — but what we know is there will be increases across the industry.”
Separately, Oxford Economic has estimated that the range of impact, depending on the tariff percentages levied, could be from $700 to $900.
That means, of course, that the ripple effect could be a tsunami. Here’s why: The impact of tax cuts may have already been felt by consumers, and the initial impact is already in the rearview mirror. Corporate tax cuts have, per the IMF, failed to ignite reinvestments. In the meantime, the stock market is gyrating wildly, in a way that may freeze consumer optimism tied to the wealth effect.
The very real impact of higher prices now extends into the holiday shopping season. Inflation has been relatively tame, and as the Federal Reserve cuts rates for the first time in more than a decade, there is the hope that reinvestment into the economy (as companies and consumers open purses) will pick up.
This time around, the headwinds may be too great for the consumer to overcome. After all, $900 is not a small sum when families spend $1,000 or so at the registers (real and virtual) through the winter festivities.
The earliest casualties may be the big retailers anchored to malls and other physical store locations, the firms that sell discretionary goods, the electronics companies that find that today’s “must have” is actually tomorrow’s “wait till next year.”