President’s Donald Trump’s trade battles with China and the rest of the world have barely touched U.S. consumers so far, but that could soon change.
The White House proposal to apply tariffs to an additional $200 billion in Chinese imports—and possibly as much as $400 billion if China retaliates—would certainly hit many consumer products, from appliances to clothing to electronics, if enacted.
When the Trump administration picked its initial target lists for tariffs against China, it was able to largely steer clear of consumer goods by focusing on products like semiconductors, plastics, machinery and other intermediate and capital goods—purchased by businesses but not directly by shoppers.
Because so many products the U.S. imports from China are consumer goods, it is likely impossible to construct a list of $200 billion in extra items for tariffs without hitting major categories of consumer goods.
The nation’s leading import from China is cellphones. In 2017 Americans bought $70.4 billion worth of them from the world’s second largest economy. Also among top U.S. imports from China are computers, at $45.5 billion, various kinds of apparel, totaling $36.4 billion, toys and sporting goods, at $26.8 billion, and furniture at $20.7 billion. Shoes and televisions are also high on the list.
If the U.S. hits Chinese products with tariffs, they could filter through the system in different ways. Chinese suppliers or U.S. retailers could absorb some of the cost, insulating consumers but hitting their own profits, or they could pass the cost on to consumers in the form of higher prices.
The U.S. Trade Representative will work in coming weeks to identify the list of goods targeted for tariffs. The Trump administration applied 25% tariffs on the first round of targeted goods and has threatened 10% tariffs on the next. That means somebody could be paying an extra $100 for a $1,000 computer, couch or television.
“Everyone is trying to sort out what is going to be on this list and how they are going to be impacted,” said Hun Quach, vice president of international trade for the Retail Industry Leaders Association. The type of products earmarked and the high dollar amount are “of course going to hit the products that you bring into your home everyday,” she said.
Only about 1% of the first round of tariffs—which was detailed on June 15—included consumer goods, compared with about 52% for capital goods such as industrial machinery and 43% for intermediate goods like semiconductor components, according to calculations from Chad Bown, Euijin Jung and Zhiyao Lu at the Peterson Institute for International Economics.
Other tariffs from the Trump administration have largely avoided directly hitting consumers as well. The White House has imposed 25% tariffs on steel and 10% tariffs on aluminum. Steel and aluminum prices have surged since the tariffs went into effect, but the prices increase have hit businesses that use the metal in their own production.
One consumer product was hit directly by tariffs in January: washing machines. Since then, their prices have soared, rising 17% over the past three months, by far the biggest three-month price increase in data going back 12 years. But most consumers don’t buy washing machines with frequency. Before the tariffs, their prices had been going down.
Overall U.S. inflation has been modest for years, but it has been rising in recent months, in part because the economy is stronger. The Federal Reserve targets overall 2% inflation and that is about where it stands now.
“It’s not tangible yet, it hasn’t passed through,” said Scott Miller, a senior adviser at the Center for Strategic and International Studies and a former director of global trade policy at Procter & Gamble Co. “In the long run, it always does. Consumers always pay tariffs in the long-run.”
The U.S. Trade Representative’s office has a legal process to follow before the new list of products is finalized. That will involve a public hearing and comment period, a process that, in the past, took about three months.
“Everyone from small mom-and-pop shops to big-box retailers are concerned about the impact on their businesses and consumers,” said Jonathan Gold, vice president for supply chain and customs policy at the National Retail Federation.
Phones are the biggest potential target. An estimated 70% of smartphones are assembled in China including almost all of Apple’s iPhones, which are mostly assembled by Foxconn Technology Group, according to trading firm Susquehanna International Group. iPads, iPods, computers, smartwatches and accessories also are made in China.
If the U.S. puts tariffs on smartphone imports from China, and if China retaliates with tariffs on components made in the U.S., Apple or its suppliers would either have to eat the cost or pass it on to consumers. Last year, Apple chose to protect its profit margins by passing on the higher costs of memory chips to consumers by raising iPhone 8 and 8 Plus prices $50 from the starting price of the iPhone 7 and 7 Plus, noted Mehdi Hosseini, an analyst with Susquehanna.
“Any further escalation would force them to make tough decisions,” Mr. Hosseini said.
During a recent interview on Bloomberg Television, Apple Chief Executive Tim Cook said he told Mr. Trump, who he met with in April, that tariffs weren’t the right approach.
The Trump administration’s ability to follow through on its threats will depend in part on how U.S. consumers respond to higher prices, should they hit.
Andrew Cler, an agribusiness loan officer in Penfield, Illinois, said he isn’t concerned about potential price increases from tariffs against China, as well as Chinese retaliatory tariffs on U.S. farm products. “In rural communities, we have a tough enough job already,” said the 32-year-old. “It might be damaging for now, but if it’s better for the future, I think it’s worth taking the risk.”
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com and Khadeeja Safdar at khadeeja.safdar@wsj.com
