Fact Checked

Could a potential U.S.-China trade war affect your wallet?

Shipping containers sit on the the Hong Kong–based CSCL East China Sea container ship at the Port of Oakland on June 20, 2018, in Oakland, California.Photo by Justin Sullivan/Getty Images News/Getty ImagesImage: Shipping containers sit on the the Hong Kong–based CSCL East China Sea container ship at the Port of Oakland on June 20, 2018, in Oakland, California.
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President Trump’s tariff on approximately $34 billion worth of Chinese imports could have a mixed impact on American consumers.

In July, the Trump administration unleashed an additional 25% tariff on imports of more than 800 types of Chinese goods, which according to the U.S. Trade Representative are worth approximately $34 billion in 2018. China retaliated by levying tariffs on U.S. automobile and agriculture exports, such as soybeans.

Will this tear a hole in your wallet?

Not necessarily. You might notice a slight increase in the price of certain products that are “Made in China.” But you could also save money at the grocery store.

What does this all mean?

A tariff is a tax that a government places on certain goods coming into its country from an outside country. Tariffs can also apply to exports, but it’s not as common. 

Here are two ways tariffs can affect U.S. consumers.

  1. Prices increase for consumer products that have been manufactured with imported raw materials that the U.S. taxes. Because those products become more expensive to make, the cost is passed on to you, the consumer.
  2. Prices decrease for U.S. exports that are hit with retaliatory tariffs. This causes international demand for these exports to drop, which leaves more product available for U.S. consumers. More supply drives the prices down at home.

So how could the current trade dispute with China play out for U.S. consumers?

The impact may not be immediately noticeable.

The Trump administration tariffs on more than 800 Chinese imports include many things you’ve probably never heard of, like vapor turbines and liquid elevators. While a lot of component and machinery parts are being hit, you won’t find popular household goods like “laptops” or “clothing” on the list.

But the new U.S. tariffs on Chinese imports could still have a direct impact on consumers. If the cost of doing business goes up, companies can pass the costs on to consumers. For example, Trump’s tariff on Chinese healthcare equipment might force hospitals to raise medical costs.

On the other hand, consumers’ wallets could benefit in some ways from the U.S.-China tariff fight. For example, China has retaliated by placing tariffs on U.S. exports like soybeans and pork. While this could hurt American farmers, American consumers could benefit from lower prices.

Here’s how it works: The Chinese tariffs will likely raise the price of U.S. soybeans and pork in China, which could drive down demand there. Stuck with an excess supply of food they can’t sell in China, farmers could be forced to lower prices in the U.S.

In both cases, the price changes could be minimal.

It’s important to keep in mind that Trump’s tariffs apply to $34 billion in Chinese imports this year. That might sound like a lot of money, but it’s only a fraction of the nearly $20 trillion U.S. GDP as of Q1 2018. That means many consumers probably won’t notice a huge spike in the price of everyday purchases.

Why should you care?

The real threat is that Trump’s trade skirmishes with China, Canada, Mexico and the European Union could spark a full-blown trade war, as more Trump administration tariffs could be on the horizon. Instead of these countries retaliating on a tit-for-tat basis, like they have so far, the fallout could escalate to the point where many of the imports and exports between these countries face higher tariffs.

If that happens, consumer prices could skyrocket for all sorts of goods.

Given Trump’s apparent animosity toward trade with China — he has long accused China of currency manipulation, threatening to place a 45% tariff on all Chinese imports as early as on the campaign trail — the trade war scenario is not entirely far-fetched.

But it’s important to point out that the U.S. is not there yet, and there’s always a chance these skirmishes will be resolved before things escalate.

What can you do?

Don’t panic.

The immediate result of Trump’s tariffs on Chinese imports could be negligible. American businesses that import from China or rely on Chinese imports will likely be hit the hardest, according to reports by The Washington Post and The New York Times, but it’s unclear how much of any price increases they’ll pass on to consumers.

We recommend you stay plugged into the news in case the situation changes.

About the author: Tim Devaney is a personal finance writer and credit card expert at Credit Karma. He’s a longtime journalist who prides himself on being a good storyteller who can explain complex information in an easily digestible wa… Read more.