The effect of these tariffs is so significant that it caused President Trump to publicly acknowledge, for the first time, that American families will bear some of the burden of his trade policies. Amid growing concern that the tariffs could damage the economy, Trump abruptly announced he would delay tariffs on certain popular products such as laptops, footwear and video games — about two-thirds of the impacted items — until mid-December.
“What we’ve done is we’ve delayed it so they won’t be relevant in the Christmas shopping season,” Trump told reporters last week. “Just in case they might have an impact on people.”
But that’s not enough to eliminate the added burden for consumers. JPMorgan researchers calculated that after the 10 percent levies go into effect, American families will be facing about $1,000 in additional costs from all tariffs on Chinese goods annually. If the upcoming tariffs are raised to 25 percent, as Trump has warned, consumers’ costs could go as high as $1,500 a year, researchers estimated.
“The impact from reduced spending could be immediate for discretionary goods and services since tariffs are regressive,” JPMorgan researchers wrote in a note last week. “Unlike the agriculture sector which is receiving subsidies/aid to offset the impact of China’s retaliatory actions, there is no simple way to compensate consumers.”
For consumers, the tariffs fallout will be big enough to erase the benefits of Trump’s 2017 tax cuts, which boosted many American families’ take-home pay by several hundred dollars last year, according to the Tax Policy Center. Because the tariffs would affect households in the run-up to the 2020 election, JPMorgan strategists predicted there is a “good chance” they will be reversed.
Despite a July rise in consumer spending, the University of Michigan’s consumer confidence index fell to a seven-month low last week, and the index gauging American consumers’ forward-looking outlook slipped even further.
It was “the first indication that the U.S. consumer might not save the world economy after all,” Paul Ashworth, chief U.S. economist for Capital Economics, wrote in a note to clients.
The blow to consumers comes as signs of a broader economic slowdown are surfacing around the globe. Central bank leaders in Europe, Australia and Asia have slashed interest rates in recent weeks, attributing the need for economic stimulus to the dampening effect of the trade war. Germany and Britain have reported shrinking growth, and economists fear both are teetering on the brink of a recession.
And China, which has seen its economic growth fall to the slowest pace in nearly 30 years while unemployment spikes and factory output plummets, announced a de facto rate cut of its own over the weekend.
Panic ensued last week after the yields, or returns, on short-term U.S. bonds eclipsed those of long-term bonds — a phenomenon that has preceded every recession in the past 50 years. Recession fears pushed the Dow Jones industrial average to its biggest single-day decline of 2019, and White House officials have been considering a temporary payroll tax cut as a way to stave off a slowdown, The Post reported.
For companies that have been at the mercy of the trade war since last summer, costs are mounting. On Tuesday, Home Depot lowered its annual sales outlook after a second-quarter earnings miss, and executives warned of the toll the tariffs could take on consumer spending.
“We are updating our sales guidance to account primarily for continued lumber price deflation, as well as potential impacts to the U.S. consumer arising from recently announced tariffs,” Home Depot’s chief executive Craig Menear said in an earnings call.
Macy’s earnings also came in well below analyst expectations last week, and the company slashed its year-end profit outlook because of a litany of uncertainties the company “cannot control,” Chief Financial Officer Paula Price said in an earnings call.
Despite slowing sales, Macy’s chief executive Jeff Gennette said in an interview with CNBC that the department store chain would not raise prices to offset the burden of the latest tariffs, because customers had “very little appetite” for higher costs when the company tried them on goods such as luggage and furniture after previous rounds of penalties.