The Impact of Tariffs on Consumers and Retailers

Tariffs are meant to protect American businesses, but tariffs can force businesses and consumers to pay more for imported products. Industries affected by tariffs can respond by absorbing the extra cost, increasing prices or even moving production to other countries.

It started with a 25% tariff on imported steel and 10% on aluminum from China. As a result, U.S. industry leaders say consumers could face higher costs for cars and trucks, beer and soft drinks, canned goods and more.

“Make no mistake, this is a tax on American families,” said Matthew Shay, the President and CEO of the National Retail Federation.

But how big will the impact really be?

It depends on how far it escalates. So far, the Trump administration has focused on raw materials and components. Beer makers said their cans will cost more to make. Car companies said their expenses for manufacturing vehicles will increase. But even these costs will not be felt until next year when raw material inventories begin to be replenished.

In fact, some food product prices such as soybeans will likely decrease for American consumers. Sales of soybeans have slowed since China retaliated with taxes on soybeans, pork and electric cars. Excess supply will lower food prices in some categories. U.S. fruit and nut farmers could also suffer, but President Trump has proposed $12 billion in aid to help American farmers.

Full scale trade war?

Much depends on what happens next. President Trump has threatened to increase the scope of tariffs to $450 billion if China indeed retaliates against his 25% tariff.

Currently only about 1% of targeted tariff items are consumer products thanks in part to lobbying by companies such as Best Buy. But if the trade war with China grows, it could impact categories both consumers and retailers will notice. Mobile phones, TV’s and computers represent some of the largest categories of consumer products imported from China. More than 41 percent of clothes and 72 percent of shoes sold domestically are also made in China.

Plus, the trade war could intensify with other trading partners such as Mexico, Canada and the EU. Mexico and Canada account for almost half of U.S. steel imports.

“The retail industry is extremely concerned by the administration’s apparent desire to ignite a trade war, where the net losers will be the very people the president wants to help,” according to the National Retail Federation’s Shay.

The U.S. Chamber of Commerce has also spoken out against the tariffs, saying the escalating global trade war will hurt American consumers in the long run.

Stay tuned.