Latest tariff hikes kick in, and U.S. consumers will likely see higher prices

            I am sure that all of you are aware of the trade war happening between the United States and China. A recent report claims that more than two thirds of Americas consumer goods imported from China face a tariff. Many companies have come out and said that these tariffs will be passed onto the consumer. A recent study done by JP Morgan found that it will be costing consumers over $1000 per household (Associated Press, 2019). Trump has announced that the already existing tariff of 25% on some goods will increase to 30% in October (Associated Press, 2019). Also, in December he will impose another round of 15% tariffs on 160B worth of imports and China has announced that in December it will apply tariffs on 75B worth of goods.

I have decided to take the time to examine what this mean by applying it the Standard Trade Model that we are discussing in class to see the effects of a tariff on supply and demand. With the 15% tariff on many consumer goods this will of course mean that the internal price of these goods will rise. As the relative price of these imported goods increase, this will cause the isovalue to change, this causing US companies to focus more on the production of goods that currently have tariffs on them from China. As US companies do this, the supply of goods they are currently slowing production of will drop as they focus more on the production of goods that have tariffs. As this drops and consumers see the price rising of the tariffed goods, demand rises for the goods that are not tariffed. As supply drops and demand rises, we get a price hike. So, with imposing these tariffs, not only will the price of the actual tariffed goods rise, the price of non-tariffed rise as well. Another area that must be noted is the effect on American exports. As American production changes in accordance with the current tariffed goods, production of goods that are typically exported drops as producers are now producing the tariffed good and selling domestically. This along with China hitting back with tariffs of its own would cause a drop in US exports because as Chinese see the price of the American imported good they want rise, they will stopping buying as much and produce more domestically. Please keep in mind this example is ignoring many other factors and is just a basic application of what we are learning  in class.

With this said, I really hope that China and Trump are being honest when they say that they are open and willing to negotiate this September before even more tariffs take effect. I personally think this will be tough because neither of them is willing to back down. America has a very large trading deficit with China as they are making a killing off us and we are getting the short end of the stick so I do understand where the President is coming from, however where will it stop if China will not give? Is he right when he says this will be best in the long run? Is it worth it for consumers to take a hit now? Hopefully they can come to an agreement soon before this gets worse.

References

Associated Press. (2019, September 1). Latest tariff hikes kick in, and U.S. consumers will likely see higher prices. Retrieved from https://www.marketwatch.com/story/latest-tariff-hikes-kick-in-and-us-consumers-will-likely-see-higher-prices-2019-09-01?mod=mw_theo_homepage