WASHINGTON – In September 2018, Minnesota companies that imported Chinese-made vacuum cleaners spent no money on tariffs. A month later they spent $2 million.
President Donald Trump’s 10 percent protective tariffs on $200 billion worth of Chinese imports took effect Sept. 24, 2018. Since then, those tariffs have added to the acquisition costs of thousands of U.S. businesses in hundreds of product categories, a new study commissioned by the Consumer Technology Association (CTA) shows.
CTA is a trade group whose 2,500 members include Minnesota-based 3M and Best Buy. Its study found U.S. companies paid tariffs totaling $1.5 billion on Chinese imports in December 2018. A year earlier, they spent just $168 million.
Minnesota businesses fared a little better. They spent roughly $32 million in tariffs on Chinese-made products in December 2018. A year earlier, the figure was around $4 million.
When, or if, these cost increases lead to higher consumer prices is unclear, according to Daniel Anthony, who analyzed U.S. Census data for the CTA study.
“When to pass along price increases is a very specific, individual process for companies,” explained Anthony, a vice president at the Trade Partnership consultancy. “What is pretty easy to say is that the longer these tariffs go on, the harder it is for companies to avoid [consumer] price increases.”
The Trump administration placed the tariffs to gain leverage in negotiations with China over that country’s theft of American intellectual property and what the White House said were unfair barriers to U.S. companies trying to do business in China, the world’s second biggest economy.
U.S. Trade Representative Robert Lighthizer also wants to balance the trade deficit between the U.S. and China that now tilts strongly toward the Asian nation. American and Chinese trade negotiators continue to meet in hopes of cutting a deal that will avoid an increase in the current tariffs from 10 to 25 percent. This increased was planned to take effect Jan. 1, but has been delayed in hopes of reaching an agreement.
While the tariffs have punished an already faltering state-run Chinese business system, the levies also have hurt American companies that depend on Chinese-made parts and products. This is especially true of the technology sector.
Chinese-made “printed circuit assemblies” are “an input into the production of countless products in today’s economy,” an earlier CTA study said. The earlier study estimated the cost of tariffs to the U.S. economy at $110 billion to $613 billion per year.
In its new study, CTA warns that rather than protect American companies, tariffs have stymied U.S. research and development on such technical innovations as the 5G telecommunications network. The network will be an enormous economic boost to whoever has the upper hand.
“In the 5G world of telecommunications, we don’t want the Chinese to dominate,” University of Minnesota trade specialist Robert Kudrle said. At the same time, U.S. tech firms that might break new ground “rely on parts sourced in China.”
An increase in tariffs from 10 to 25 percent on $200 billion in Chinese imports will hurt many American companies and drive some out of business, Sage Chandler, CTA’s vice president for international trade, warned.
Best Buy CEO Hubert Joly has said that tariffs affect “only about 7 percent or about $2.3 billion of our total cost of goods sold, and many of the products on this list are accessories.” Even though Joly assured financial analysts in November 2018 that he expected the tariff’s effect to be “minimal,” a company spokesman said Thursday that Best Buy is “certainly pleased “ that tariffs on Chinese imports have not gone to 25 percent.
With production facilities in China that serve the Chinese market, 3M has avoided some of the sting of import tariffs. Still, China-related tariffs had a $20 million impact on the St. Paul-based multinational in 2018, a spokeswoman said.
“We are anticipating increases in raw material and logistic costs,” she continued. “So we are actively working to offset the impact by making sourcing, supply and pricing changes.”
CTA’s Chandler said “there’s already been quite a bit of price increases” based on 10 percent tariffs. Many more price hikes will come if the 25 percent tariff rate kicks in, she predicted.
Kudrle said any price hikes likely will be much smaller percentages than the tariff rates. Nevertheless, he looks for a Chinese-American trade agreement in the near future that will at least reduce the percentage of tariffs on Chinese imports, even if it does not get rid of them.
Numbers in the new CTA study showed some American companies cut their imports of Chinese goods after the tariffs took affect last fall. Some of that probably reflected hoarding inventory in anticipation of the protective levies, Chandler said. But it also included companies that found alternative sources for parts and products.
The data doesn’t say where those alternative sources are located. Kudrle suspects the vast majority of them are in Asia. The idea floated by the White House that making Chinese parts and products more expensive will force U.S. companies to buy American is, said Kudrle, “fantasy.”