By John Ross
The US tariffs against China pose every American family with a stark choice: do they want to pay $850 a year to the US tax authorities, to carry out a trade war against China, or do they want to spend that $850 on their own household? This will significantly affect their living standard.
The reason the choice is really that simple was analysed by the respected Western economics company Oxford Economics – which has no connection with China. In the most comprehensive study of China-US trade, "Understanding the US-China Trade Relationship" it found: "Chinese manufacturing...lowered prices in the United States for consumer goods, dampening inflation and putting more money in American wallets. At an aggregate level, US consumer prices are 1 percent - 1.5 percent lower because of cheaper Chinese imports. The typical US household earned about $56,500...trade with China therefore saved these families up to $850 that year."
The reverse is therefore also true — blocking off Chinese imports through tariffs will raise prices for the average US household by $850.
How tariffs are already raising US prices
As the first tariffs against China, which affected $34 billion of imports, only came into force on 6 July it is, of course, too early to see their full impact. But the effect of other tariffs, and the price rises they caused, makes crystal clear will happen to US prices if tariffs against China are introduced.
A tariff on washing machines was followed by a 20% increase in the price of washing machines and dryers in the US.
The second major new tariff was on steel and aluminium. Steel prices were already rising in the US before these tariffs were introduced but the tariffs inevitably significantly worsened this. By July 2018, US prices on hot rolled band steel, used in numerous US products, were 52% above their level in October 2017.
The Wall Street Journal noted:"Polaris is raising prices on its...recreational vehicles to cover $15 million of the $40 million in tariff-related costs the Minnesota-based manufacturer expects to pay for foreign-made steel, aluminium and components from China this year. Polaris is also facing retaliatory tariffs from other countries on products it exports from the U.S., including the...motorcycles it ships to Europe. Chief Executive Scott Wine said Polaris would accelerate plans to move production of motorcycles that it sells in Europe to Poland from Iowa to avoid rising European Union tariffs on U.S. motorcycles." This follows Harley-Davidson's decision to relocate part of its production out of the US in order to avoid Europe's retaliation against US tariffs.
Aluminium prices have increased by 11%. As a result, Coca Cola, the US's most iconic soft drink, announced it was taking the unusual step of raising prices midyear in North America because of rising costs, including prices for aluminium. Thousands of other manufacturers will be similarly affected.
Caterpillar, the biggest US construction equipment manufacturer, announced that it expected losses of $100-$200 million from tariffs - putting upward pressure on its future prices.
The result of tariffs was therefore accurately summarised by the Wall Street Journal as "Soda, Motorcycle Prices Rise as Tariffs Hit Home for Consumers".
But tariffs on washing machines, which affected $10.3 billion of imports, and on steel and aluminium, affecting $44.9 billion of imports, cover a much smaller range of goods than tariffs affecting $250 billion of imports which have been threatened by the Trump administration against China. The price rise consequences of US tariffs against China for US buyers will therefore be more severe.