OCTOBER 6, 2018
Price tags could soon make you do a double take.
Donald Trump’s rapidly escalating trade war with China threatens to slap tariffs on $500 billion of goods from our top trading partner. That’s about everything we buy from the country.
To avoid narrowing their profit margins, U.S. retailers are expected to pass the cost of these levies on to consumers in the form of price hikes. “[C]ustomers will face cost increases for essential items like car seats, cribs, backpacks, hats, pet products and bicycles,” Walmart warned in a letter to the government last month.
“Wars have winners and losers,” said Mark Cohen, director of retail studies at the Columbia Business School. “The loser in this case is the American consumer.”
Cohen gave an example of how it could work. Let’s say that before the trade war, your local store owner bought toy trucks for $20 and sold them for $35. In addition to the raw materials, manufacturing and transportation fees, she is now faced with another expense: say, a 25 percent tariff. Those toy trucks go from costing her $20 to costing $24.
As a result, she’ll simply make the item more expensive, pricing them at $39 instead of $35. “There is going to be a very abrupt change in pricing,” Cohen said.
There are more than 6,000 items in the crossfire. The vast list includes microwaves, trout, cashews, perfume, baseball gloves and toilet paper. Trump’s tariffs begin at 10 percent and are expected to climb to 25 percent in 2019.
Consumers will have few ways to defend against the pain of higher prices, experts say.
Some will turn resourceful, though, said Mark Rosenbaum, department chair and professor of retailing at the University of South Carolina. “They’ll have no other choice,” he said.
Holiday shopping is likely safe from the impending price increases, he said, because stores have already ordered their merchandise for the season.
To that point, it might be more than just presents you want to pick up sooner rather than later.
“If you believe we’re going into a price war, then it makes absolute sense to purchase your high ticket durable item that’s manufactured in China, now,” Rosenbaum said.
Courtney Jespersen, consumer savings expert at NerdWallet, agreed bracing for the worst is the best strategy. “Leave a little bit of leeway in your monthly budget,” she said. “In case some of the items you normally buy begin to cost more than you’re used to paying.”