Trump recently raised tariffs 10% at the end of September and is anticipated to raise tariffs again by 25% on January 1, 2019. Consumer prices depend on how the tariffs are applied. Tariffs apply to goods imported from China but some companies may have warehouses full of goods already in the U.S., possibly in anticipation of the tariff increase. Any material that arrives in a US port gets the 10% tax applied to it and that tax will have to be passed on. Prices are predicted to rise now if they haven’t begun rising already. The federal government incentivizes supply chain adjustments by levying a smaller tariff ahead of a substantial one. Cost increases will be passed down to consumers. Manufacturers have broadly warned product teams ahead of time.
What Companies Will be Affected?
Cisco, Dell, HP, IBM, Intel, Microsoft and Unisys will be affected. Not many can afford to shoulder a 10-25 percent hit on a substantial part of their production costs. Manufacturers and suppliers build list pricing so that end users do not feel the constant fluctuation endured in the supply chain. It’s reasonable to assume manufacturers will likely end up changing list prices across the board rather than working in tariff pricing on some units and not others to diffuse the impact of the action to a degree simplifying the bookkeeping up and down the supply chain.
This could be catastrophic for smaller companies that are importing Chinese components. Dell said the tariffs “could result in serious damage to Dell and its employees,” since the new costs will either raise the price of products or come out of the company’s bottom line. “It is well-known that tariffs on intermediate goods will harm producers of the final goods. Historically, protectionist countries have taken this into account by putting higher tariffs on producers of final goods to offset the impact of tariffs on intermediate products”.
What About the Holidays?
President Trump tweeted that there’s a simple solution: “Make your products in the United States instead of China. Start building new plants now. Exciting!”. Basically, we should just make the products in the U.S. where there’d be zero tariffs. Analysts said the next tariff increase will affect virtually every category of consumer goods. “Our concern with these tariffs is that the U.S. will be hardest hit, and that will result in lower U.S. growth and competitiveness and higher prices for U.S. consumers,” Apple said in its letter to the government. The company said the tariffs would “show up as a tax on U.S. consumers”. Computer and phone makers are involved in a global supply chain that includes Chinese manufacturing, and that can’t be easily excluded without harm to U.S. companies. Either way, prices will increase after the holiday season making a large impact across the board.