Trump, China trade war: Wilbur Ross says Americans won’t notice tariff price increase

Commerce
Secretary Wilbur Ross

CNBC

• 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.

Commerce Secretary Wilbur
Ross on Tuesday said the American family shouldn’t worry
about price increases from President Donald Trump’s trade
war with China.

During a CNBC interview, Ross downplayed possible inflationary
effects of
Trump’s latest round of tariffs on $200 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
$50 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 $200 billion, that’s $20 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 $50 billion of imports, and 10% tariffs on a further
$100 billion of imports, the additional duties, if implemented
could drag average GDP growth below 2% in 2019,” Daco said.