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Trump is betting American families are willing to pay for his trade war

President Trump speaks to reporters on the North Lawn of the White House on June 15, shortly after he announced new tariffs on China. (Evan Vucci/AP)
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President Trump's decision Friday to put hefty tariffs on $50 billion worth of Chinese products means costs are going up for a lot of goods. A tariff is another word for a tax, and Trump just announced significant new taxes on 1,102 items.

This is no longer a war of words between Trump and China. There are actual economic consequences now. The result is that Americans will almost certainly face higher costs as companies pay more for parts they need to build cars, dishwashers and tractors, and then firms turn around and pass those higher prices onto consumers.

All of Trumps tariffs so far — on China, on steel and aluminum, on washing machines and on solar panels — will end up costing the average U.S. family $80 a year, Moody's Analytics estimates in a report to be released next week. If Trump continues to pile tariffs on China (he has threatened to do another $100 billion) and China retaliates, then the cost to the average family would rise to $210, according to Mark Zandi, chief economist at Moody's Analytics. Wall Street bank Goldman Sachs has also forecast rising prices from the tariffs.

The Tax Foundation, a think tank that supported Trump's tax law, predicts that more than 45,000 jobs will be lost because of the tariffs Trump has issued so far. They also forecast a small hit to the economy and wages. Analysts Kyle Pomerleau and Erica York argue that the tariffs will hurt the economy because prices will rise, reducing profits for companies and costing consumers more. Alternatively, tariffs could cause the U.S. dollar to rise, which usually makes it more difficult for American companies to sell their products abroad, another potential hit to jobs and the economy.

The effects of a trade war are difficult to fully predict, in part because how much pain they'll cause the United States depends on how other countries respond. And, of course, the worst case may not come to pass if Trump and China's President Xi Jinping strike a deal soon. But the bottom line is that a lot of different organizations, including ones that typically lean to the right, are all saying costs are probably going up from these tariffs.

Even Trump agrees with that.

In a rally in late April in Michigan, he told supporters to be prepared for “a little pain” in this fight with China and the European Union. He actually issued the warning twice.

First he said: “There may be a little pain for a little while, but ultimately for my farmers, I love my farmers. They are great patriots. … You're going to do much better.”

Then Trump said: “When we lose $500 billion a year … in a trade deficit. When we lose hundreds of billions of dollars in intellectual property theft, not only China but others, we have to stop it. We can’t allow this to happen. So in a certain way, I call people patriots because … short-term you may have to take some problems. Long-term, you’re going to be so happy. You’re going to be so happy.”

Trump is calling on Americans to pay higher prices for a while because he thinks it will be worth it if he gets concessions from China and the E.U. It's what economists and business leaders call a cost-benefit analysis, and Trump is arguing it will be worth it in the end.

But plenty of people are running that cost-benefit calculation in their head and saying it is not worth it. A slew of businesses and Republicans in Congress are urging Trump to stop. They say these tariffs are harming too many U.S. companies and families. That's because higher costs don't hit everyone equally.

The reality is every family isn't going to pay $80. Some families are likely to pay hundreds or thousands or be the ones losing jobs and livelihoods, while most others probably won't notice the price increases.

For example, “laundry equipment” prices have shot up 17 percent since Trump put tariffs on washing machines in January. Families that are buying a new washing machine now probably aren't happy, but the majority of Americans aren't shopping for a new washing machine and may not care much.

Trump's latest round of tariffs is hitting a lot of farm equipment, such as combines used in harvesting and parts for milking machines. For America's 2.1 million farms, that could hurt a lot, especially since China is retaliating by putting tariffs on a lot of U.S. agricultural products. But the rest of the United States might not notice.

China, Canada and the E.U. have targeted politically vulnerable parts of America with their retaliatory tariffs. It's another reason many Republicans are urging Trump to back down. They also say that growth, which is picking up after the Republican tax cut and extra government spending, is now in doubt because of the tariffs.

Gary Cohn, Trump's former top economic adviser, went as far as to say Trump's tariffs could wipe out the entire economic gains of the tax cuts at a Washington Post Live event this week.

But Trump and (most of) his top advisers say this is about winning the big economic war of the 21st century. China and the United States are fighting for dominance in technology and biotechnology. Trump and his team say the United States won't win if China keeps stealing American intellectual property and technology secrets. Years of talks have only made it worse, they say, and it's time for action.

That’s why Trump told farmers and blue-collar supporters in Michigan to buckle up for a bumpy ride for a while. But he also told them it will be worth it in the end.

Trump's top trade negotiator, U.S. Trade Representative Robert E. Lighthizer, told Fox Business a similar story Friday morning, calling the new tariffs “very moderate.”

“We hope that this leads to further negotiations. We hope it leads to China changing its policies,” Lighthizer said.

But Trump is making a gamble. If he does end up getting China to concede on big issues, such as IP theft, many will probably say it was worth it. But for the farmer or the small auto parts manufacturer that may have a terrible year or go out of business during the tariff battle, it probably won't feel worth it. And if China doesn't give in some, Trump will have upset many nations around the world with tariffs and have little to show for it but upset consumers — and potentially upset voters.


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