From clothing to toys to electronics, Americans buy a half-trillion dollars’ worth of goods from China every year. After all, the United States is the second largest trading partner of China. Chinese-made products have already become such an indivisible part of Americans’ daily life that it is a blue moon for them to wean off low-cost imports. However, President Donald Trump’s plan to impose tariffs on up to $60 billion of imports from China could pull up the prices of many such products.
White House officials announced that they have considered the impact of the proposed tariffs on domestic consumers. In an effort to minimize the effect, they are currently working on to target the majority of tariffs on products that businesses, rather than consumers, buy, such as IT accessories, computing and communications, auto and aircraft parts, manufacturing plants, etc. But how exactly would such aggressive move affect U.S. economy? Take its technology and auto industries as examples.
No matter how manufacturers of smartphones, televisions, or computers proudly boast their products are “Designed in California”, all count to a large extent on China’s technology and manufacturing sectors. Trump’s new campaign of economic sanctions on China creates a headache for US companies reliant on Chinese circuit boards, chips, servers and possibly their customers, too.
The impacts could abound beyond hardware companies. Open Compute Project is originally created by internet companies like Facebook, Google, and Microsoft in order to lower the prices of servers and other data center equipment. But now its function is weakened by the new China tariffs. Silicon Valley lobbying group The Internet Association stated the knock-on effects like higher product prices and job losses are their topmost worries and there is going to be a large number of lobbying recently as each sector does not want to be caught up in the thing.
Moreover, overseas companies that operate in China has to transfer intellectual property or even technology assets to a locally owned partner so that they can keep staying in China. Amazon moved its hardware and operations last November.
Economists maintained that most auto companies would ultimately pass on any higher import costs to consumers in the form of higher prices. The tariff act that imposes a 25 percent tariff on steel and 10 percent on aluminum will not affect the related industries immediately as feared, but in the end, consumers will bear the consequence in 2019, as per Dan Ikenson, director of trade policy studies at the Cato Institute. It takes time for the higher cost of raw materials to flow through the supply chain. Most U.S. manufacturers have already produced a predefined number of products waiting in warehouses to be sold, and they are normally insulated by yearlong contracts that are pricing out.
Once the costs accumulate until the end of the supply chain, prices for luxury consumer items like autos and appliances could start going up. The rising price of cars not only hinders American auto manufacturers’ capability to expand global market, but largely hampers U.S. citizens’ purchasing power.
Yet we are unable to precisely estimate the severity of the impact as it will depend on the products consumers purchase, what countries are imposed tariffs, and the final tariff figures. The White House plans to unveil the details of proposed tariffs for public comment within 15 days. For now, Trump administration trade officials have determined 1300 product lines worth approximately $48 billion as potential targets. Entrepreneurs will then have 30 days to make comments and weigh in.