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Some see it as a trade war, others call it a mere economic war, while others still say that the noise we hear now is a classic clatter. But while business between President Trump and China and other countries is stepping up, it's the average American consumer who is watching. Consumer spending accounts for more than two-thirds of economic activity in the United States
The effects are just beginning. New Trump administration rates will eat into corporate profits and boost inflation, say a lot. Although prices may increase overall, pork and soybean prices have fallen as a result of Chinese retaliation against these products, and agriculture-dependent communities, despite aid of $ 12 billion. dollars to American farmers, are deeply worried. Automakers are revising their financial forecasts downward, in part because of tariffs. According to General Motors, the rates will result in lower jobs, lower wages, less investment in the future and higher prices of thousands of dollars.
While the market's enthusiasm weakens, the Dow Jones Industrial Average the beginning of the year – it may be only a matter of time before the confidence of the consumers begins to sag. The economy's positivity fell slightly – less than 1% – in the July consumer survey of the University of Michigan. But the negative concerns about the impact of tariffs have accelerated considerably, from 15% in May to 21% in June and 35% in July, as consumers worry about the pace of economic growth and the prospects for growth. # 39; inflation.
Many see the need for trade reform, that is certain. "For Trump, it seems that the choices are very clear: as the most powerful nation in the world today, the United States can either wait for death with thousands of cuts, or death with a chance to renewal". Zhang, marketing professor at Wharton and director of the Penn Wharton China Center
Meanwhile, the United States and China seem to be stuck in a stalemate. Which country can be better off before businesses and consumers start to suffer, and how long will it take?
"The threshold of pain in a democratic country is always lower," says Zhang. "However, China sells much more to the United States than the United States to China, and the economic resilience and mechanism of social and political stability differ in both countries." Under stress, both countries will suffer , but only time can tell whether President Trump or President Xi can hold his breath any longer. "
The United States has three major trade disputes at once. It is trading a series of tariffs and retaliatory measures with China, attempting to rewrite the NAFTA terms with Canada and Mexico, and seems for the moment to bring down tensions with the EU. it started with US tariffs on steel and aluminum exports. Yet, Zhang says, at this point "there is no sign that the US economy is about to shrink because of the onset or threat of trade wars."
Trump said that trade wars are easy to win. the biggest, "and he promised a return to the golden age of American manufacturing with high-paying jobs.Not see this as likely.But trade policy is a complex matrix, and businesses and consumers will eventually adapt to any new business relationship with China and other countries, says Morris A. Cohen, professor of operations, information and decisions and co-director Fishman-Davidson Center for Management of Services and Operations
"The threshold of pain in a democratic country is always lower. However, China is selling much more in the United States than in the United States. -Z. John Zhang
"I have visited companies in Germany that have the highest labor costs in the world and are competitive globally. ways to find them, "says Cohen. "It's a complicated situation and in the end, I think the bottom line is that it's very hard to say that you're only pressing a variable and that's it." is what will happen. "
The current trade upheavals are far from clear, "this is not as bad as people say," says Cohen. "There will always be winners and losers and companies will adapt to the reality they need, but go back to the past, I do not think so."
The American consumer and the point
Rates are likely to result in higher prices for imported goods and, to a lesser extent, for non-imported goods that use imported materials, says Zhang. "However, the overall impact of prices on consumers because of tariffs should not be exaggerated."
Zhang sees at least four mitigating factors for price increases. First, sellers of imported products are still encouraged to absorb some of the tariffs to retain their customers. "It is never profitable for a seller of imported goods to pass 100% of tariff increases to consumers if consumers are somewhat elastic, that is, they buy less if prices increase."
price sensitive than others – a feature to which the smart retailer will be alert. For example, if an importer acquires property from a foreign country at an aggregate cost of $ 10 and sells it in the United States for $ 20, he makes a unit profit margin of 100%. If a new rate of 25% is imposed on the product, the cost of acquisition for the importer will be $ 12.50. Zhang said, "If the importer still sells the good at a price of $ 20, his unit margin will become 60%." Generally, the seller will increase its price somewhat and the magnitude of this increase will depend on the sensitivity of the goods. price consumers. "
Secondly, consumers can still substitute for imported products with higher tariffs to buy cheaper products – if such alternatives exist – they can also delay purchases.
Thirdly , tariffs will boost domestic industries competing with imports and there will be some effect on income for workers in these industries and beyond. "In other words, if your income is higher, the price increases will not seem so painful to you, "says Zhang.
Fourth, retaliatory tariffs from other countries may increase the supply of goods intended for ma foreign markets in the domestic market, so their prices may fall.
Do consumers tend to change their buying habits? What is the tipping point that would make someone rebuff of a major purchase like a car?
The PWBM estimates that a global trade war would reduce GDP by 0.9% by 2027 and by 5.3% by 2040.
"A good analogy can be found in the fluctuation in the price of gasoline, "says Zhang. "If the price increase is temporary or perceived as such, consumers will be less likely to change their habits.If it's permanent, consumers will buy smaller cars and drive less for sure." buying German cars are probably not as price sensitive, so cars made in the US may not benefit much or not at all, but consumers buying goods imported from China can be very price sensitive if they are not industrial buyers and, as a result, importers can absorb a substantial portion of the tariff increase. "
," said Mary E. Lovely, Professor of Economics at Syracuse University, in a recent article on the Wharton Knowledge @ Wharton issue on SiriusXM. "But what makes it easier for President Trump to wage this trade war right now is the fact that the US economy is performing well right now." to be a time when we are really enjoying a very healthy economic growth and investing as crazy in the future of American workers, but we are not, "she said.
Much of US growth is used to mortgage our future, says Lovely, "because we are setting policies that are bad for future investment." In the United States, the future competitiveness of US products in Once again, the great economic growth we are experiencing – we are even starting to see an increase in real wages of workers – hides the suffering we will experience in the long term because of these truly unthinking policies.
Consumers are already feeling tariffs and are more likely to feel the effects if new price threats materialize, said Lovely in a separate interview. "Of course, as we are charging more and more goods, part of this extra tax must be issued to consumers, but we do not know how much, "she says. [19659002] Rates seem to discourage imports and help domestic producers – and they do, says Mauro F. Guillen, director of the Wharton Lauder Institute and professor of management. "But this only works in the short term.The domestic producers will most likely profit from a boon, but unless they innovate and try to improve, they will lag behind. In fact, tariffs discourage innovation Protectionism engenders laziness When an industry or business is protected, there is less incentive to innovate. "
" There will always be winners and losers and companies will adapt to the reality they need But go back to the past I do not think so. " -Morris A. Cohen
Higher pricing, more consumer pain
The media paid special attention to Trump rates with destroyed job histories. But these accounts are just anecdotal. Do tariffs have an overall corrosive effect on the economy and, if so, when?
Kent Smetters, professor of business economics and public policy and budget model faculty director Penn Wharton, says it's too early to declare it a trade war. New tariffs, however, could lead to one, which would lower GDP. If, however, US trading partners respond with "trade openness" – effectively reducing existing foreign tariffs relative to US exports – the opposite would be true. The PWBM estimates that a generalized trade war would reduce GDP by 0.9% by 2027 and by 5.3% by 2040. Salaries would decrease by 1.1%. here 2027 and 4.8% by 2040, compared to the current policy.
would, however, have the opposite effect: GDP would increase between 0.2% and 0.7% by 2027 and between 1.3% and 4% by 2040. Wages would increase between 0.3% and 0.8% by 2027 and between 1.2% and 3.6% by 2040
"The downside risk of a trade war is therefore more important than the upside potential of a trade opening, the model concludes.
Duties on imports from China equate to a tax on US manufacturers and on global supply chains, said the Tax Foundation, a think tank on tax policy, in a position paper on July 6. "WE. Companies will first pay the import tax to the US government when they bring goods into the country. Businesses that can pass on these costs to consumers of their products, which will leave them less money to spend elsewhere after paying higher prices for products affected by tariffs. Companies that can not pass on the costs will, at best, have less cash to invest and grow in the United States, or at worst they will become unprofitable, fired or shut down. Although companies pay tariffs to the government first, it is the Americans who bear the ultimate burden of these tariffs.
President Trump proposed a 25% tariff on imported automobiles, SUVs, vans and trucks as well as auto parts. and if these come into effect, between two-thirds and 100% of this increase will be passed on to consumers, according to a policy note from the Peterson Institute for International Economics co-authored by Lovely. "Almost every car has imported parts – there's virtually no 100% car in the US, so there's nowhere to hide," says Lovely. cross the border several times – they put a coin in a car and the body is fired. "
The planned increase could go from $ 1,400 to $ 2,000 more for a $ 7,000 compact car for a car, she says the luxury SUV
"Protectionism breeds laziness. When an industry or business is protected, it is less incentive to innovate. " -Mauro F. Guillen
" Despite larger price increases for luxury vehicles, less-affluent buyers will likely suffer more from a car fare because they're spending a larger amount share of income on a new car purchase, "says the Peterson policy paper, which states that vehicle purchases account for 12% of total household income in the bottom fifth of the income distribution.% of income among the top fifth
If consumers think that they can avoid price rises by buying a car on occasion, they should think again. According to Lovely, used cars will be fewer in number because the owners will keep them longer and the relative shortage will cause prices to rise.
Price increases in many categories may intensify in the coming months. ovely said that the first waves of customs duties have heavily weighed on producers who import things to make others, so that the effect on consumers is delayed. "Now, if President Trump bets on his threat of spending $ 200 billion more after that, he will have to turn to consumer goods – table clothes, sneakers, clothing of all kinds, and it will pass quickly to consumers. . " [19659002Uneautreconséquencedestarifsdit-elleestmoinsdechoixpourleconsommateuraméricain"cequelesAméricainstiennentpouracquisàl'épicerieetceschoixserontdiminuésparcequecertainsproduitsseronttropcherspourêtreimportéssurcemarchéNousallonscommenceràperdrecertainesdeceschosesquifontdel'Amériqueunendroitidéalpourfairedesachats"
Qu & # 39; in it is the concept that Americans will favor products made in the United States even if the price of & # 39; a given article is higher? "I do not know how much consumers care about it," says Cohen. "The data does not show that people will pay even a penny more for that.If you have a choice between two products, a dollar for one and a dollar and a cent for the other, most people will Will be laughing at it. "
Some have suggested that tariffs and threats relate to negotiating a better deal.After all, says Cohen, two or three decades ago, China was the big winner. "China has successfully appropriated a growing fraction of world trade and has done it quite reasonably, one could say, by providing good products at low prices. What's wrong with that? As a result, they removed shares in more developed countries. "
" If you have a choice between two products, a dollar for a dollar and a dollar for the other, most people will laugh at it. " -Morris A. Cohen
Cohen says that the ultimate goal should be" to have a better business relationship where we are closer to balance, where the real losers are protected and where governments can compete. But to say to come back to America and produce everything there, that does not happen. "
Zhang says that Trump believes that there has been" a cold war against the United States in commerce by many nations for many years. The calculation came after years of inefficient and distinguished diplomacy. "
Yet, he thinks there is hope." I have no doubt that in chaos, ruins and deadly relationships, a fairer trading system and a reinvigorated America will emerge that long-term benefits to world peace and prosperity. "
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