More than a year into the U.S.-China trade war, American consumers are about to find themselves squarely in the cross hairs for the first time, with the average household facing up to $1,000 in additional costs each year from tariffs, according to research from JPMorgan.
Consumers, whose spending fuels about 70% of the U.S. economy, have been largely shielded from previous rounds of tariffs, which have left businesses reeling and upended global supply chains. But that’s about to change with the 10% levies on roughly $300 billion in Chinese imports, about a third of which will take effect Sept. 1. Those tariffs will primarily target consumer goods.
The effect of these tariffs is so significant that it caused President Donald 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 to delay tariffs on certain popular products like laptops, footwear and video games — about two-thirds of the affected 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 the 10 percent tariffs would cost American households about $1,000 annually. If the 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 predict 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 the United Kingdom have reported shrinking growth.
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.