- Commerce Secretary Wilbur Ross dismissed fears about the effects of President Donald Trump’s trade war on American consumers.
- “Nobody’s going to actually notice it at the end of the day,” Ross said of possible price increases from tariffs on Chinese goods.
- But many economists argue that increased costs will have a meaningful effect on inflation and could dampen US economic growth.
During a CNBC interview, Ross downplayed possible inflationary effects of Trump’s latest round of tariffs on $US200 billion worth of Chinese products. The 10% tariffs, which cover a range of goods from chemicals to fish to handbags, will go into effect on September 24 and come in addition to the 25% tariffs on another $US50 billion of Chinese goods already in place.
Despite the latest significant escalation of the trade war, Ross said that the typical American family shouldn’t expect to see a boost when buying products.
“Well, you can do the numbers this way if you have a 10% tariff on another $US200 billion, that’s $US20 billion a year. That’s a tiny, tiny, tiny fraction of 1% total inflation in the US, because it’s spread over thousands and thousands of products,” Ross said. “Nobody’s going to actually notice it at the end of the day.”
Ross appeared to concede that the cost of Chinese goods would increase from the tariffs as businesses that rely on Chinese parts are forced to pass on the cost to consumers. But by Ross’s estimation, the overall inflation effects will be negligible.
Inflation has stayed relatively tame since the trade war picked up in earnest at the end of June. But certain items that were hit by tariffs have seen dramatic price increases.
Additionally, while imports only make up a sliver of the overall economy, domestic producers are also expected to raise their prices in response to the tariffs as they gain pricing power. This means that along with a direct increase in prices for the Chinese goods that face the new duties, similar goods in the US may also become more costly.
These secondary effects could also send ripples around the economy, as the as the uncertainty around trade policy could dampen consumer confidence and make companies more hesitant to commit long-term capital toward investments.
“The wide range of targeted products should have significant effects on supply chains and may adversely affect both consumers and business sentiment,” Lewis Alexander, the chief US economist at Nomura, wrote Monday. “In particular, recent University of Michigan surveys indicated that consumers have become increasingly aware of trade tensions.”
Gregory Daco, the chief US economist at Oxford Economics, said that depending on the severity of the trade war going forward, inflation and sentiment changes could lead to a slowdown in US GDP growth.
“Since our September baseline already included 25% reciprocal tariffs on $US50 billion of imports, and 10% tariffs on a further $US100 billion of imports, the additional duties, if implemented could drag average GDP growth below 2% in 2019,” Daco said.