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home : most recent : statewide implications August 20, 2018

7/29/2018 12:31:00 PM
Consumer economy in crosshairs if trade war continues, BSU economist Mike Hicks warns
Top imports from China to United States
Electronics products: 39 percent

Machinery: 10.4 percent

Textiles and apparel: 9.7 percent

Minerals and metals: 6.5 percent

Chemicals: 6.4 percent

SOURCE: United States International Trade Commission

Christopher Stephens, Herald Bulletin

ANDERSON – If the trade war continues to escalate, consumers of even staple goods will feel the effect in the pocketbook soon, experts warn.

As the Trump administration threatens increased tariffs against Chinese goods, even as they step back from economic war with the European Union, it’s consumers on both sides of the Atlantic that are set to lose.

Currently only customers who are buying near-commodity goods or big-ticket items like washers and dryers that are mostly made of steel and aluminum, are seeing large price increases, said Mike Hicks, director of the Center for Business and Economic Research at Ball State University. 

“Because aluminum and steel are already seeing these price spikes, that’s the most immediate effect. … Whirlpool stock collapsed, because they sell things that are made heavily of aluminum and steel,” Hicks said.

And as President Donald Trump continues to threaten a 10 percent tariff on all goods coming out of China, Hicks said consumers of nearly all goods will see prices rise.

But because large retailers like Walmart or Kroger usually purchase merchandise about 100 days ahead of when it’s set to go on sale, it’ll likely be about three or four months before Hoosiers see higher prices on everyday goods.

And the effect might not be drastic, because some goods are more susceptible to price changes than other.

“So those products are going to see some of the cost of the tariff built into them … (but) Walmart will eat some of that as well. That means fewer people working at Walmart on Christmas, fewer flex hours, things like that,” Hicks said.

Electronics, textiles and machinery are top of the list of goods shipped from China, according to the United States International Trade Commission, meaning those products will be hardest-hit by tariffs.

Although many Americans will have no choice but to pay higher prices for necessary products, when it comes to big purchases like appliances or cars consumers are more likely to put off unnecessary purchases another year or two in hopes that prices will return to normal.

“You are already seeing people deferring purchases of washers and dryers for that very reason,” Hicks said. “What I suspect is, unless you are buying a big ticket item, you haven’t felt it yet, but you are beginning to see it creep up.”

And that deferred purchasing has the potential to do real damage to the American economy.

“It doesn’t take very many of us. … If 10 percent of all Americans waited another year to replace their car, for example, that is a recession for the car industry,” he said.

And if things continue, and the president makes good on a threat to tax all $500 billion in goods imported from China each year, Hicks predicts a devastating blow to the country’s economy.

“Those individuals’ consumer decisions are going to be felt by winter time … and if there is a tariff on the full $500 billion worth of products, I think we are talking about recession in the United States,” he said. “The tampering of a supply chain that involves 15 percent of the economy is sufficient for us to slip into recession.”

For Anderson resident Tonya Harris, even a slight increase in the cost of food or her medicine for sickle cell anemia over the coming months would be devastating.

“It’s all I can do is try, to have somewhere to live, food, my medication. ... It’s just hard already,” Harris said. “I do worry about it.”

But Anderson lawyer John Eisele sees it differently. If slightly higher prices for a while are what it takes to bring industry back to the United States, it’s only a small price to pay. 

“We have a long history of being taken advantage of,” he said. “For our economy as a whole, it will make it better.”

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• Hoosier farmers starting to feel effects of trade war with China
• South Bend-area businesses and farmers won't be exempt from U.S.-China tariff battle
• Trade wars, following prices cause Ag Economy Barometer to biggest ever monthly fall

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