If you’re reading this on Sunday, then the US-China trade war has just escalated once again. Overnight, 15% US tariffs on Chinese goods worth an estimated $110 billion kicked in, as did Beijing’s retaliatory tariffs on about $75 billion worth of US goods.
The world has already lived through two rounds of US tariff increases and Chinese retaliation. But this weekend’s tariffs, along with another round that has been delayed until December 15, are different than the ones that came before, according to Aditya Bhave, global economist at Bank of America Merrill Lynch.
“For previous rounds of tariffs, there was clearly an attempt to stay away from consumer goods,” Bhave told me. “Now they’re running out of non-consumer goods.”
Popular shopping items like laptops, footwear and toys are being targeted. That could hit consumer confidence at a delicate moment for the US economy, when spending is making up for softness in the manufacturing sector.
JPMorgan Chase has predicted that the US tariffs imposed on China have already cost the average American household $600 per year. That will rise to $1,000 after the September and December tariffs take effect, according to the bank.
The December tranche is particularly risky, Bhave points out. That’s because, unlike previous rounds, there are few alternative countries from which US companies can import the products in question. China accounts for more than 80% of US imports of those goods.
What it means: Businesses won’t be able to shield customers by switching suppliers. Instead, they’ll likely need to pass the extra costs on.
Also watch: These tariffs will also hit China hard, Bhave said. “They have a pretty big capacity to take pain, but that doesn’t mean they aren’t hurting,” he said. Keep an eye on the manufacturing sector, private investment and consumer confidence — as well as any announcements of fresh public spending.
