U.S. companies had it good. We were the leader of the free market. Goods entered the United States at next to nothing, with the average tariff paid on U.S. goods imports just 2.6% as recently as September, according to data compiled by The Trade Partnership, based on U.S. Census data.
As of Friday, U.S. companies are paying 25% on $200 billion worth of Chinese imports, not to mention the same value on steel and aluminum imports from other countries. President Trump also threatened to tariff all of China’s imports to the U.S., or around another $325 billion. Tariffs there could be as high as 25%. If everything China sold to the U.S. was tariffed, it would mean a 10 fold increase to the average U.S. companies pay for goods at the port.
“Companies are faced with the challenge of whether to pass that cost onto customers or not. There is a lot of reluctance to that. It has to be your last solution,” says Brian Keare, ex-CIO of Nortek and current CIO of Incorta, a data analytics company. “But you can only get hit in the face so many times. I think eventually we will get an inflation day of reckoning.”
As of November 1, 2018, U.S. tariffs affected $255 billion in U.S. imports and foreign retaliatory tariffs were being applied to $124 billion in U.S. exports. The new tariffs have increased average U.S. tariff rates since they started to take effect in March on steel and aluminum. The trade-weighted average U.S. tariff paid by U.S. companies – reflecting tariffs paid on goods subject to the new tariffs as well as regular tariffs – rose from 1.5% or less in the first five months of 2018 to 2.6% by October 2018. Given U.S. goods imports of $2 trillion to $2.5 trillion annually, a one percentage point increase in average tariffs paid equates to $20 billion to $25 billion in additional tariff costs for U.S. importers.
Average tariffs on goods not caught in Trump’s trade war remain low, between 1.2% and 1.4%. In contrast, average tariffs on products subject to new tariffs went from 1.6% in April to 14.2% in October , according to The Trade Partnership. Average tariffs on affected products have increased every month since March and nearly doubled from October, the first full month of tariffs on $200 billion worth of Made in China products.
As a result of new tariff structures, The Trade Partnership estimates that as much as 2.2 million jobs will be lost over the next two years. The total includes tariffs on steel, aluminum, auto parts and China. Current tariffs on China alone are seen stripping around 934,000 people from the workforce.
Trump took to Twitter again on Friday to try and spin the tariff plan by saying that money collected from companies can go to pay for grains and animal proteins not sold to China, and instead rerouted to poor countries. However, for a president who doesn’t like state interference, this would require a sizable government farm purchasing program to take up what the Chinese are not buying.
“If you have a short term horizon, then you shouldn’t proceed with doing business in China,” says Sam Natapoff, president of Empire Global Ventures, a consultancy that advises companies on setting up shop in China and elsewhere and a former senior advisor to the Governor of New York State for International Commerce. “China is a question of time horizon. If you are willing to make a 10 to 15-year commitment, then you should proceed. If you are not, don’t go,” he says.