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More than a year after the start of the trade war between China and the United States, American consumers are about to find themselves for the first time in the line of sight, an average household having to endure up to # $ 1,000 in additional costs each year in tariffs, according to a JP Morgan study. .
Consumers, whose spending supplies about 70% of the US economy, have been largely sheltered from previous rounds of tariffs, which have left companies disrupted and upset global supply chains. But that will change with the 10% levies on Chinese imports of about $ 300 billion, of which about a third will come into effect on September 1st. These rates will mainly target consumer goods.
The effect of these tariffs is so important that it has led President Donald Trump to publicly acknowledge, for the first time, that American families would shoulder some of the burden of his trade policy. Faced with growing concern that tariffs could hurt the economy, Trump announced abruptly that it would delay tariffs on some popular products such as laptops, shoes, and video games – about two thirds of the articles concerned – until mid-December.
"What we have done is that we have delayed it so that they are no longer relevant for the Christmas shopping period," Trump told reporters last week. "Just in case they could have an impact on people."
But this is not enough to eliminate the additional burden on consumers. JP Morgan researchers calculated that the 10% tariff would cost US households about $ 1,000 a year. If tariffs are raised to 25%, as Trump warns, consumer costs could reach $ 1,500 a year, the researchers said.
"The impact of lower spending could be immediate on discretionary goods and services as tariffs are regressive," JP Morgan researchers wrote in a note last week. "Unlike the agricultural sector that receives subsidies / aids to offset the impact of retaliatory measures taken by China, there is no simple way to compensate consumers."
For the consumer, the price spillovers will be large enough to erase the benefits of Trump 's tax cuts in 2017, which have allowed several US families to increase by several hundred dollars the net salary of many American families. last year, according to the Tax Policy Center. Because tariffs would impact households in the run-up to the 2020 elections, JP Morgan strategists predict that there is a "good chance" for them to be reversed.
Despite a rise in consumer spending in July, the University of Michigan consumer confidence index fell to its lowest level in seven months last week, and the benchmark for the outlook for US consumers is still weakened.
It was "the first indication that the US consumer might not save the global economy after all," wrote Paul Ashworth, chief US economist at Capital Economics, in a note to his clients.
The shock to consumers comes as signs of a more widespread economic downturn are surfacing around the globe. Leaders of central banks in Europe, Australia and Asia have cut interest rates in recent weeks, attributing the need for economic stimulus to the economy. 39, effect of mitigation of the trade war. Germany and the United Kingdom have announced declining growth, and economists fear that both are on the brink of a recession.
And China, which has seen its economic growth slow at the slowest pace for almost 30 years, as unemployment soared and manufacturing output collapsed, announced a de facto reduction in its own rate. this week-end.
Panic ensued last week after US short-term bond yields hit long-term bond yields – a phenomenon that preceded every recession in the last 50 years. Recession-related fears pushed the Dow Jones industrial average to its sharpest decline in one day in 2019, and White House officials have considered a temporary reduction in the payroll to avoid a slowdown, reported The Post.
For companies that are at the mercy of the trade war since last summer, the costs are rising. On Tuesday, Home Depot lowered its annual sales outlook after the loss of the second quarter results, and executives warned that rates could affect consumer spending.
"We are updating our sales forecasts primarily to account for the continued deflation of the price of lumber, as well as the potential impact of recently announced tariffs on the US consumer," said Craig Menear, General Manager of Home Depot, in a profit appeal.
Macy's earnings were also well below analysts' expectations last week, and the company slashed its earnings outlook for the end of the year due to many uncertainties that she "can not control. said CFO Paula Price in a call for results.
Despite a slowdown in sales, Macy's general manager, Jeff Gennette, told CNBC in an interview that the chain of department stores would not raise prices to offset the burden of the latest rates because customers had "very little interest in higher costs when the company was trying out goods like luggage and furniture after previous rounds of penalties.
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