How much will 10% tariffs hurt?
No matter where you are in the world, you're buying products from China. It's the global manufacturing and export powerhouse, especially for cheap consumer goods.
Starting next week, the US will put 10% tariffs on $200 billion of Chinese goods. That's on top of the $60 billion that's already being charged import taxes.
Naturally, that will push prices up but how does it filter through? First, there's a timing issue. Some companies will have stockpiled ahead of the tariffs so they may not feel the squeeze right away. Second, companies may absorb the costs rather than pass them onto consumers. That would erode profitability but not necessarily push up prices. The ability to do that will depend on each company's profile. Thirdly, currency moves on the tariffs could change the equation. A 10% fall in the yuan, for instance, would make the net difference negligible.
So far, hints from central banks are that inflation will rise but the indication is that they're inclined to raise rates to counter act it.
As for consumer goods, it's tough to say. The first place to watch might be dollar stores or any other retail good that's operating on tight margins. Still, consumer goods are only a portion of the CPI. Food, transportation medical care and housing combined are 81% of the index. Many Chinese made products leech into those categories indirectly but tariffs aren't necessarily going to be a big problem for consumers, but if 10% rises to 25% and the remainder of the $267B in untaxed Chinese goods are hit, the effects will undoubtedly add up.
Here's what Wilbur Ross said today:
For the moment, I'll be watching for how central bankers react for a better sense of what they're going to do in response. My first inclination was to anticipate a more-dovish response because of the threat to global growth but so far it's been the opposite.