According to an Aug. 13 press release from the office of the United States Trade Representative (USTR), there will be a 10 percent tariff levied against $300 billion of Chinese imports effective Sept. 1. The same press release announced a modification, after hearing from the public and business owners, exempting some of the $300 billion in Chinese imports from the 10 percent tariff until Dec. 15.
Items Subject to the 10 Percent Tariff on Sept. 1
Highlights from the USTR’s list include select types of coffee, fruit, vegetables, insects and bees. Along with dairy products, livestock such as sheep, horses and goats are subject to the 10 percent tariff.
Items Subject to the 10 Percent Tariff on Dec. 15
The USTR pointed out that many of the items recently exempted include consumer goods such as computer displays, select shoes and clothes, LED lamps, slide projectors and playing cards. Other items on the list include notebooks, video game systems, toys, snowshoes and parts, fishing rods and reels, paint rollers and microwave ovens.
When it comes to industry experts and associations, it looks like there will be limited impacts from the trade spat between the United States and China, coupled with pressure from government shutdown in the beginning of the year. According to the National Retail Federation (NRF), 2019 is expected to see an increase in spending between 3.8 percent and 4.4 percent – or more than $3.8 trillion.
Initial figures per the NRF detail that retail sales for 2018 increased by 4.6 percent, outpacing the organization’s growth expectations of 4.5 percent. 2018’s figures are compared to 2017’s of $3.68 trillion in retail sales. 2018’s estimates factor in a 10 percent to 12 percent increase in online sales, which is also expected for 2019. One caveat for these projections by the NRF is that it doesn’t include dining, gas stations or auto dealers. GDP is expected to grow about 2.5 percent over 2019.
The NRF explained that due to lower energy costs, specifically tame retail gas prices and low interest rates, there should be minimal negative consumer impact. However, the NRF cautions that while the retail industry has been able to cushion the 10 percent tariffs, if tariffs increase to 25 percent, there will be a greater impact on consumers’ costs and retailers’ profitability.
Based upon recent developments, business earnings will face greater challenges. According to the United States Trade Representative’s Aug. 23 press release, tariff rates for $250 billion worth of Chinese imports currently subject to a 25 percent tariff rate will increase to 30 percent effective Oct. 1. For the $300 billion in Chinese imports described above, those going into effect Sept. 1 and Dec. 15, instead of being subjected to a 10 percent tariff, each batch will be subject to a 15 percent tariff rate.
With the Congressional Budget Office (CBO) forecasting a drop in the United States’ gross domestic product (GDP) of 0.3 by 2020, Daniel Fried explains that there’s no doubt the U.S.-China trade tensions have and will take a toll on the economy. Fried explains how they’ll affect consumer spending and business expenditures:
- The initial impact is that consumers and businesses will have a lowered purchasing power.
- The next impact is that businesses will either slow or decide to divert investments elsewhere, such as realigning their supply chains to mitigate the tariff impacts.
- There’s also concern that while businesses may lose international business, that might be offset by domestic consumption.
With Fried and the CBO projecting the mean income for households will be reduced by $580 by 2020, based on 2019 purchasing power, it’ll certainly make consumers think twice about where and how to allocate their spending. This will likely take a toll on companies’ sales figures and likely future earnings reports.