April 5, 2007
What Will Tariffs on Chinese Imports Mean for Consumers?
It’s not as if all imports from China are suddenly going to have tariffs imposed on them. Now that some will, however, it leads to the inevitable questions of how far this will go and what it will mean for U.S. consumers and retailers.
Last week’s decision by the Commerce Department to place a tariff on uncoated paper imported from China could drive up the price to create catalogs, brochures, magazines and other items.
The National Retail Federation (NRF) voiced its objections over the decision to impose the tariff. Erik Autor, an international trade counsel with the group, told CNNMoney.com, “We complain about China not being transparent. I understand that the administration is under a lot of political pressure from Congress about the trade deficit with China, but this isn’t appropriate.”
Mr. Autor and others maintain U.S. consumers will be among those hurt if tariffs are placed on Chinese goods.
“Almost every toy sold in the United States is imported from China. Seventy percent of shoes imported are from China. We import 70 to 75 percent of clothing, and 20 percent of that is from China,” he said. “With consumer electronics, housewares, furniture, China is either the principle supplier to American retailers or one of the top suppliers.”
In an email to CNNMoney.com, Wal-Mart spokesperson Amy Wyatt wrote, “We urge a balanced approach to encouraging healthy two-way trade between the U.S. and China. We understand the importance of U.S. trade laws as well as the need to open the Chinese market to the export of more U.S. products. The use of countervailing duties is part of U.S. trade remedies with most of our trading partners and the application to China has been expected for some time.”
Wal-Mart currently imports more than $20 billion in goods from Chinese suppliers. The company is not expecting any immediate impact for it or its customers because it sources goods from more than 70 countries, according to Ms. Wyatt.
Discussion Questions: What is your reaction to the Bush administration’s reversal of past practice and its imposition of tariffs on Chinese goods? Where do you expect this to lead and what will it mean for retailers and consumers?
BrainTrust
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Discussion Questions
Poll
Tariffs on Chinese Imports should be reasonably expected, instituted, and executed. I’m in agreement with Wal-Mart that a balanced approach is good for everyone.
Imports of Chinese paper aren’t that significant in the big picture. If tariffs are raised on a wide variety of Chinese goods, retail financials will improve. It takes less work to sell fewer units of anything at a higher average price than more units at a lower average price. Many retailers haven’t thought about this, so they’ll fight the tariffs. Furthermore, when new goods are priced higher, the old goods in your inventory are worth more. Additionally, any tariffs on commodities available from other countries won’t necessarily change the US retail price, just the country of origin. If the same commodity is available from 3 other countries, and the Chinese version has a tariff, you can buy it from the other guys instead. Clothing, toys, and electronics not just made in China. They’re made just as well in Vietnam, Singapore, Brazil, Mexico, Philippines, Korea, etc.
The answer is fairly straightforward–higher prices for consumers. Manufacturers and retailers will not absorb the entire amount of the higher costs and typically pass on most if not all of that higher cost to the consumers. That, of course, affects the buying power of the consumer and the story continues…lower sales, consumer confidence issues, etc. There are many imbalances in world trade, but often the cure is worse than the disease when it comes to trade defense programs. China is a low cost producer compared to many countries and trade defense measures will not (and should not) change that. We need to have more effective ways to deal with trade issues than slapping punitive duties on products which increase consumer costs without otherwise achieving much benefit.
I think even more needs to be done. If we don’t stop losing jobs in the US to overseas markets, soon there will be no one working in the US to buy these goods anyway.
Protectionism rarely improves the quality of life nor has it proven to improve the business of those industries for whom the tariff was meant to protect.
The highest tariffs in the past have been applied to textiles (up to 20%+ in some cases) and yet the domestic textile industry didn’t benefit.
While there are valid issues over the transparency of prices, there is little room on either side to point the finger.
Increased tariffs will not significantly impact the volume of imports from China and will serve only to increase prices for consumers and decrease exports to China.
Of course it means higher prices–because prices are passed on to consumers. However, when examining the import/export data, the Commerce Department needs a better way of classifying information. A few years ago, 1/3 of the imports to the US were items belonging to US manufacturers that had been produced in other countries and would be used either in the final production of products made in the US or would be sold in the US by US manufacturers. What would the trade balance look like if the items used in US production or sold by US companies in the US were deducted from the import number?
It’s a two way street! If China insists that products produced and shipped from the USA to China be assessed a tariff then they should expect similar treatment. The tariff rates between the two countries have been historically out of balance. It is about time USA manufacturers are allowed to play on more level playing field.
I think this is a much deeper issue then just tariffs. If items cost more from China, we will see inflationary pressure accelerate in the US. If we keep losing jobs to China, we will see more pressure on the economy and a greater separation in economic classes. Customers need money, not credit to buy goods. In order to compete with Chinese economics, the American worker will have to get paid very little with fewer benefits. The working capital and manufacturing business plans have also left the country. I agree; slight cost increases will help retailers sell fewer items at a higher cost but this entire equation does not appear to equal out. We have eaten from the tree of low cost labor; now it is time to pay up. If China ever decides to stop shipping to the US…I just can’t imagine.
Not one of the respondents seems to grasp the nuance of tariffs. The purpose is NOT to protect goods from other (foreign) sources but to protect the US Dollar–known also as the ‘Petro-Dollar’. Many of you may not remember Bretton-Wood or any of the other meetings that have occurred to make agreements concerning money but be aware, tariffs hardly benefit anyone other than the issuing agency of a country’s money. Here, it’s the Fed.
For a better view, consider that China holds a tremendous amount of US currency-value-wealth in many forms. Then, ask yourselves, How will China (or any other debtor nation) manipulate those monies? Know also, at this time the Yuan is not floating with the Dollar. You will now begin to understand why tariffs occur and what the true underlying purpose is. You will also become aware of why very certain products are chosen for tariff.
Tariffs are not punitive. Some will always argue disapproval but the truth is, their understanding of the process is lacking.
For this current issue…review the paper industry in the US as it is at this time and some light bulbs will likely come on.
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Tariffs on Chinese Imports should be reasonably expected, instituted, and executed. I’m in agreement with Wal-Mart that a balanced approach is good for everyone.
Imports of Chinese paper aren’t that significant in the big picture. If tariffs are raised on a wide variety of Chinese goods, retail financials will improve. It takes less work to sell fewer units of anything at a higher average price than more units at a lower average price. Many retailers haven’t thought about this, so they’ll fight the tariffs. Furthermore, when new goods are priced higher, the old goods in your inventory are worth more. Additionally, any tariffs on commodities available from other countries won’t necessarily change the US retail price, just the country of origin. If the same commodity is available from 3 other countries, and the Chinese version has a tariff, you can buy it from the other guys instead. Clothing, toys, and electronics not just made in China. They’re made just as well in Vietnam, Singapore, Brazil, Mexico, Philippines, Korea, etc.
The answer is fairly straightforward–higher prices for consumers. Manufacturers and retailers will not absorb the entire amount of the higher costs and typically pass on most if not all of that higher cost to the consumers. That, of course, affects the buying power of the consumer and the story continues…lower sales, consumer confidence issues, etc. There are many imbalances in world trade, but often the cure is worse than the disease when it comes to trade defense programs. China is a low cost producer compared to many countries and trade defense measures will not (and should not) change that. We need to have more effective ways to deal with trade issues than slapping punitive duties on products which increase consumer costs without otherwise achieving much benefit.
I think even more needs to be done. If we don’t stop losing jobs in the US to overseas markets, soon there will be no one working in the US to buy these goods anyway.
Protectionism rarely improves the quality of life nor has it proven to improve the business of those industries for whom the tariff was meant to protect.
The highest tariffs in the past have been applied to textiles (up to 20%+ in some cases) and yet the domestic textile industry didn’t benefit.
While there are valid issues over the transparency of prices, there is little room on either side to point the finger.
Increased tariffs will not significantly impact the volume of imports from China and will serve only to increase prices for consumers and decrease exports to China.
Of course it means higher prices–because prices are passed on to consumers. However, when examining the import/export data, the Commerce Department needs a better way of classifying information. A few years ago, 1/3 of the imports to the US were items belonging to US manufacturers that had been produced in other countries and would be used either in the final production of products made in the US or would be sold in the US by US manufacturers. What would the trade balance look like if the items used in US production or sold by US companies in the US were deducted from the import number?
It’s a two way street! If China insists that products produced and shipped from the USA to China be assessed a tariff then they should expect similar treatment. The tariff rates between the two countries have been historically out of balance. It is about time USA manufacturers are allowed to play on more level playing field.
I think this is a much deeper issue then just tariffs. If items cost more from China, we will see inflationary pressure accelerate in the US. If we keep losing jobs to China, we will see more pressure on the economy and a greater separation in economic classes. Customers need money, not credit to buy goods. In order to compete with Chinese economics, the American worker will have to get paid very little with fewer benefits. The working capital and manufacturing business plans have also left the country. I agree; slight cost increases will help retailers sell fewer items at a higher cost but this entire equation does not appear to equal out. We have eaten from the tree of low cost labor; now it is time to pay up. If China ever decides to stop shipping to the US…I just can’t imagine.
Not one of the respondents seems to grasp the nuance of tariffs. The purpose is NOT to protect goods from other (foreign) sources but to protect the US Dollar–known also as the ‘Petro-Dollar’. Many of you may not remember Bretton-Wood or any of the other meetings that have occurred to make agreements concerning money but be aware, tariffs hardly benefit anyone other than the issuing agency of a country’s money. Here, it’s the Fed.
For a better view, consider that China holds a tremendous amount of US currency-value-wealth in many forms. Then, ask yourselves, How will China (or any other debtor nation) manipulate those monies? Know also, at this time the Yuan is not floating with the Dollar. You will now begin to understand why tariffs occur and what the true underlying purpose is. You will also become aware of why very certain products are chosen for tariff.
Tariffs are not punitive. Some will always argue disapproval but the truth is, their understanding of the process is lacking.
For this current issue…review the paper industry in the US as it is at this time and some light bulbs will likely come on.