It was just another Labor
Day weekend. Americans barbecued, watched baseball, visited family — oh, and
watched the cost of consumer imports from China go up by 15 percent on
September 1. The Washington
Post noted the
occasion: “At 12:01 a.m., U.S. customs will begin collecting a
15 percent tax on products such as clothing, footwear, pens, pencils,
diapers, Bluetooth ear buds, televisions, golf clubs and fishing line. The
official list of affected items runs 114 single-spaced pages.” Recall that when
the Chinese announced their retaliation on the new consumer tariffs, the
president upped the new tariffs from 10 percent to 15 percent and raised the
existing 25 percent tariffs to 30 percent. The most recent tranche is largely
consumer goods, and the costs will not simply disappear into smaller profit
margins, currency revaluations, or lower China revenues.
The consumers have been
watching and they understand the ramifications. The Reuters/University
of Michigan consumer sentiment index decreased 8.6 points, from
98.4 in July to 89.8 in August, which is the biggest drop in points since
December 2012 (when the concern was the so-called “fiscal cliff” of rising
taxes). The current conditions component was down 5.4 points, to 105.3 in August
from 110.7 in July, while the consumer expectations part was down
10.6 points, to 79.9 from 90.5 in July. Why? Tariffs. As Richard Curtin, chief
economist for the Survey put it: “The recent decline is due to negative
references to tariffs, which were spontaneously mentioned by one-in-three
consumers. Unlike concerns about the fiscal cliff, which were promptly
resolved, Trump’s tariff policies have been subject to repeated reversals amid
threats of higher future tariffs. Such tactics may have some merit in
negotiations with China, but they act to increase uncertainty and diminish
consumer spending at home. Unlike the repeated tariff reversals, negative
trends in consumer sentiment cannot be easily reversed.” The fallout of the
tariffs on household spending is the most critical issue for the near-term
outlook for growth.
On top of that, the direct cost of U.S. tariffs is significant, but it misses
important economic fallout from the retaliation of the targeted countries.
And focusing on China misses the existing steel and aluminum tariffs (as well
as repeated threats by the president to levy tariffs on imported cars and car
parts). For these reasons, AAF’s Jackie Varas continues to tally a comprehensive measure
of the costs.
Tariffs diminish the value of a good day’s work. One has to appreciate the
irony of implementing them on Labor Day weekend.
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