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Saturday, June 8, 2019

Tariffs are a national sales tax on all of us

Donald Trump’s two-front trade war just took a turn for the worse
Image may contain: 1 person, textThe Trump administration escalated its trade war with Beijing as it began collecting higher tariffs on many Chinese goods arriving at U.S. ports, amid warnings from domestic manufacturers and retailers that the resulting higher prices will be pass directly to American consumers.

U.S. officials began collecting 25% tariffs on many Chinese goods arriving in the U.S. on Saturday morning, the latest round in a series of tit-for-tat trade skirmishes between the world’s two largest economies.

Trump announced last month that tariffs on $200 billion of goods arriving from China would rise from 10% to 25% and pledged to put levies on another $325 billion of Chinese imports at some point in the future.

Meanwhile, the administration is threatening Mexico with tariffs, in an unusual gambit using international trade as a bargaining chip to force greater cooperation with the president’s stalled immigration policies.

The double whammy of tariffs on China and Mexico raised the ire of investors, who expressed fears that Trump’s fiscal policies risk plunging the country into a downturn.

“We’re in the middle of tariff 2.0,” Jamie Cox, managing partner at Harris Financial Group, told USA Today. “Markets tend to react badly when things come out of left field.”

Trump, however, argued that his tariff-happy stance is great for American consumers.

“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods,” Trump said, announcing the higher tax on May 5 in a tweet. “These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday.”

The administration, however, delayed implementation of the tariffs from May 10 to Saturday, allowing a grace period for cargo that was at sea and had departed China before the announcement of the new rate.

The higher tariffs drew an immediate retaliation from Beijing and outrage from U.S. companies and business groups.

Brett Biggs, Walmart’s executive vice president and CFO, warned that prices will ratchet upwards as a result of the tariffs, and that his customers will bear the brunt of those increases. “Increased tariffs will increase prices for customers,” he said.

Anticipating the U.S. actions, Beijing began even earlier on Saturday to collect higher, retaliatory tariffs on a $60 billion list of U.S. goods entering China. 

Those tariffs, which went into effect at midnight in Beijing, raises tariffs by an additional 20% or 25% on more than half of the 5,140 U.S. products imported by China. In earlier retaliation to U.S. moves, Beijing had set tariffs at rates of 5% or 10% on the targeted goods.

A host of U.S. firms, including major retailers such as Dollar Tree, Walmart and Macy’s, decried Trump’s moves, warning that U.S. tariffs on Chinese products would force them to raise prices for American consumers.

“We expect that it will be impactful to both our business and especially to consumers in general,” Dollar Tree CEO Gary Philbin said Thursday in a call with Wall Street analysts.

Trump has repeatedly and erroneously asserted that while China is bearing the brunt of the trade war, U.S. consumers aren’t paying more for imported goods.
But economists and corporate executives disagree with the president, saying there’s no way higher tariffs on Chinese goods won’t hit U.S. consumers in the pocketbook.

Walmart’s Briggs told Wall Street analysts earlier this week the world’s largest retailer can’t avoid passing on the higher cost of goods from China onto its customers. 

“We have mitigation strategies that have been in place for months,” Briggs said in his call with analysts. “But increased tariffs will increase prices for customers.”

In a separate trade-related outburst, Trump threatened to impose broad tariffs on Mexican imports, if the country fails to halt the flow of migrants across its border into the U.S., setting off still more opposition to that plan from a broad array of typically supportive lawmakers and business groups.

On Thursday, Trump said the U.S. might impose upwards of 5% tariffs on nearly $360 billion in Mexican imports, linking international trade with his immigration policies. 

If enacted, as proposed, the tariffs would begin at 5% and increase by 5 percentage points each month before reaching 25% on Oct. 1. Trump pledged to stick with the Mexican tariffs until Mexico stops the flow of undocumented migrants into the United States.

The U.S. imported about $371.9 billion in goods and services from Mexico in 2018, according to figures compiled by the Office of the U.S. Trade Representative.

Predictably, business groups expressed outrage at the notion of slapping tariffs on one of America’s most important trade partners. The U.S. Chamber of Commerce said it is considering a lawsuit to prevent the Trump administration from proceeding with tariffs on Mexico.

“We have no choice but to explore every option available to push back,” the business lobby’s executive vice president and chief policy officer Neil Bradley said in a statement.

“Because of the intense negative impact of this move, we have to consider all options: legal, congressional, etc.,” Bradley said.