As we enter the third month of the third quarter, the US and China have now moved ahead with their latest increase in tariffs. The 15% increase applies to around $110 billion of Chinese imports, now leading, in aggregate, to higher taxes on over two-thirds of imports of Chinese consumer goods. Trump’s target is 15% duties on a further $300 billion of imports by year-end. With ongoing weakness in manufacturing and lending measures, consumer spending has remained one of the few robust economic indicators in recent months; but it is increasingly uncertain how much a resultant increase in consumer products from clothing to some technology products will hurt the bottom line of businesses and drive down consumer demand.
The next set of further 15% tariffs is due on the 15th December, which will be focused on technology goods, and timed to not interfere too much with holiday shopping (at least for those who don’t leave it until Christmas Eve). Following these hikes in consumer product prices, it’s uncertain how much they will dampen consumer sentiment – not only as higher taxes impede spending but as we discover just how much the positive consumer spending figures of late have been inflated by purchases brought forward to avoid such tariffs.
Some estimates put the average US household around $800 worse-off each year due to the tariffs. Some footwear brands have said that with the compounding of all these tariffs some of their products will now face “up to 67%” duties. Similarly, companies like Apple are preparing for the tariff impact on their bottom line to be as much as $1bn, or up to 2% of annual profits. Correspondingly, further retaliatory tariffs from China on the US came into effect on Sunday 1st September, which along with similar tariffs on the 15th December, will hit $75 billion of US imports of foodstuffs with 5-10% levies along with the reintroduction of a previously withdrawn 25% tariff on US autos.
We continue to see the disputes finding no immediate comprehensive solution, in that they reach much deeper than Trump’s ego or intellectual property infringement. China’s push towards technological autonomy in the “Made in China 2025” vision along with growing US protectionist sentiment in both political parties and electoral bases, make it exceedingly difficult to reach an agreement that fully returns to the openness in trade companies and consumers have been accustomed to in the past couple of decades.