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Businesses and consumers would pay more under the Trump tariffs

Posted on by Vaseline
Businesses and consumers would pay more under the Trump tariffs

Higher rates could cost an average middle-class household more than $2,600 a year in higher prices.

If Donald Trump wins the election, Milwaukee-based Fyxation Bicycles could face a 60% tariff on the bikes it imports from China, a tariff increase that would likely hurt sales.

Under President Joe Biden, the company already pays a 36% tariff, an import fee similar to a tax, on certain bicycle products from China. Trump has proposed raising the tariff to 60% on all goods made in China, and to 20% on goods imported from other countries.

According to the Peterson Institute for International Economics, even a 20% rate increase could cost an average middle-class household more than $2,600 in higher prices.

Companies like Fyxation are feeling the pain as people cut back on non-essential purchases. A “crack down on China” tax might be in the interest of politicians, but it’s really just a tax on consumers, says Nick Ginster, co-owner of Fyxation Bicycles.

Proponents of tariffs argue that the duties will help prevent the U.S. from being flooded with cheaply produced foreign goods, including those subsidized by the Chinese government. With specific goals in mind, there is evidence that tariffs could help U.S. companies regain their position against foreign competitors.

Stoughton Trailers has won its trade dumping case against China

For example, in 2021, a coalition of U.S. trailer manufacturers, including Stoughton Trailers of Stoughton, prevailed in their complaint that Chinese companies were selling trailer chassis in the United States for less than the actual cost of making them, a trade violation known as dumping.

More: Jobs returns to Stoughton In a game-changing development for Wisconsin’s economy, manufacturing is returning home

As a result, tariffs of more than 200% were imposed on the trailers used to transport ocean freight containers on America’s highways. Sales went back to American manufacturers and supported thousands of jobs in Wisconsin, Michigan, Pennsylvania, New Jersey, Alabama and Texas.

But critics said a side effect of more expensive trailers was that the tariffs increased the cost of transportation for a wide range of goods used in our daily lives — increases that are ultimately paid by consumers.

Similar arguments were made about tariffs on foreign-made home appliances.

Tariffs on foreign-made washing machines, imposed in 2018 and set to expire in early 2023, boosted U.S. appliance production as GE and Korean manufacturers Samsung and LG opened or expanded plants in Kentucky, South Carolina and Tennessee.

“However, there is some pretty solid evidence that the 2018 tariffs on washing machines have driven up the price of washing machines by 12%. And even though dryers were not included in the rates, those prices rose as well,” said Brian Jacobsen, chief economist at Annex Wealth, in Brookfield.

Both Republicans and Democrats have supported tariffs

To varying degrees, tariffs have been popular with both Republicans and Democrats, in part because the money raised goes to the U.S. Treasury Department, but also because elected officials are eager to please voters concerned about China and the loss of U.S. manufacturing .

“If consumers have to pay a hundred dollars more for a washing machine that they only buy every ten years, but there is a city that could see a factory come back and create jobs, then consumers won’t lobby against the policy too much, while the handful people who may get a job will be very strong in their support. That calculus drives a lot of policymaking,” Jacobsen said.

Proponents of tariffs argue that they are effective in trade negotiations. But countries are retaliating with actions against US-made products such as Harley-Davidson motorcycles, Kentucky Bourbon and agricultural products. Threatening high rates is “a bit like threatening to drive your own car off a cliff,” says Joshua Zive, an international financial lawyer in Washington, DC.

Trump imposed nearly $80 billion in tariffs on thousands of products in 2018 and 2019, essentially one of the largest tax hikes in decades, according to the nonpartisan Tax Foundation in Washington, DC.

Biden kept most of the Trump tariffs and added some of his own.

Future rates depend on the outcome of the presidential election

Depending on whether Trump or Vice President Kamala Harris wins the election, the US could now see a continuation of Biden’s policies, some changes or drastic increases in tariffs.

“I think many people understand that Trump needs to sound very serious about imposing tariffs so that his threat is credible. If countries believe he will not make good on the threat, then they have no reason to believe the threat. ‘, says Jacobsen.

Harris would likely pursue a trade policy more similar to that of the Barack Obama and George W. Bush administrations, with less use of sweeping tariffs, Zive said.

“I think a return to normality would be welcome,” he said, as most companies don’t like big and sudden changes brought on by trade wars.

To avoid steep tariffs, many manufacturers have moved production from China to other Asian countries such as Vietnam. They have also shifted work to Mexico, where labor costs are lower than in China, and to the US, where higher costs are offset by advantages such as proximity to the market.

Still, there are costs associated with moving work around the world, and wrong decisions can have disastrous consequences.

Some of Fyxation’s competitors ran into trouble in their attempts to move production out of China. They quickly realized that setting up shop in another country was not what they expected.

“They screwed up and now they’re out of business,” Ginster said.

Major bicycle companies, such as Wisconsin-based Trek, produce in China, but also make bicycles in Taiwan, Vietnam, Germany, the Netherlands and the United States. To some extent, they have the financial resources to shift production when U.S. trade policy changes.

The effect of tariffs on U.S. bicycle brands has been uneven, says People for Bikes, a trade association that represents manufacturers and consumers.

According to People for Bikes, some companies are only disadvantaged based on trade policy and not on the quality of their products.

Consumer backlash against tariffs

This fall, the U.S. announced tariff increases on imports from China on items such as medical gloves, lithium-ion batteries, steel and aluminum products and semiconductors. Some of the new rates went into effect at the end of September, while others are set for January 2025 or 2026.

According to the National Retail Federation, American consumers could lose billions of dollars in purchasing power if tariffs are raised on common household products such as microwaves and clothing from China.

Low-income households are particularly affected, said Jonathan Gold, the federation’s vice president of supply chain and customs policy.

Small U.S. businesses are also vulnerable to higher tariffs if they import products or supplies from China.

“Unfortunately, many small and medium-sized businesses do not have the ability to absorb these price increases, so they have to pass them on to consumers,” Gold said.

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