Americans Could Learn to Live Without ‘Made in China’

(Bloomberg Opinion) -- President Donald Trump’s latest round of tariffs on China is essentially a tax on Americans, who will pay more for some goods. It’s not a huge cost increase, though, and it might help bring back some of the jobs eliminated by Chinese imports.

As a consumer, living without “Made in China” appears to be daunting.

In 2005, when U.S. goods imports from China were about half what they are today, a U.S. journalist, Sara Bongiorni, and her family tried living for a year without buying anything made in China. She wrote that China “coated our lives with a cheerful veneer of cheap toys, gadgets and shoes” and was “taking over the place.” An inventory of the family’s Christmas gifts went 25-14 in China’s favor, and enough was enough.

The family, however, ended up unable to buy items like candles and sleeping bags. And Bongiorni suspected that she was sometimes buying unlabeled Chinese imports, anyway -- such as apple juice, made from Chinese concentrate.

That dependence would seem to augur poorly for U.S. consumers given Trump’s imposition of tariffs of 10 percent and his threats to bump those up to 25 percent unless China lowers its barriers to American trade and investment. In a column for China’s Xinhua news agency, John Ross, wrote that Trump’s China tariffs could cost the average American household $850 a year.

The number is based on a 2017 report from Oxford Economics, written for the U.S.-China Business Council. It estimates that U.S. consumer prices are 1 percent to 1.5 percent lower thanks to cheap Chinese exports; the average U.S. household earned $56,500 in 2015, so the effect translated into savings of $850 for the year. But Trump’s tariffs don’t mean Chinese goods are going to disappear or become more expensive than alternatives made in the U.S. and other countries; the putative savings won’t be completely eliminated, so the math in the Xinhua column doesn’t quite hold up.

The notion that Chinese imports put downward pressure on U.S. consumer prices is backed up by serious academic work. In a 2017 paper, Liang Bai of the University of Edinburgh and Sebastian Stumpner of the University of Montreal calculated that U.S. inflation between 2004 and 2012 was 0.29 percentage points a year lower thanks to Chinese import penetration. Still, it wouldn’t make a huge difference to an ordinary consumer even if that effect were to disappear.

In an analysis published in July, Sarah House and Ariana Vaisey from Wells Fargo Securities estimated that the $200 billion of Chinese imports that Trump is targeting account for 1.68 percent of U.S. consumer spending. They estimated that if all of Trump’s threatened penalties materialize, inflation will speed up by 0.5 percentage points. 

Consumers, of course, would notice much more significant price increases when buying specific products. Washing machines, on which Trump slapped tariffs and quotas in January, are a case in point. The measures undermined imports and resulted in a 18.5 percent price hike between February and June. But then, the highly competitive U.S. market cannot sustain such increases for long. Washing machine prices went down 2.6 percent between June and August. In constant terms, according to the Bureau of Labor Statistics, they’re merely up to their 2015 level. Most consumers wouldn’t really notice the difference.

In other words, Trump’s trade war on China isn’t about to make life hell for U.S. consumers, even if it causes a modest increase in inflation. But, unlike tariffs directed, for example, against European cars, which compete with American-made ones on quality rather than on price, these restrictions may be beneficial for job creation. Academics have established that cheap Chinese imports depress manufacturing employment. Theoretically, driving them down should have the opposite effect. 

Trump has made clear where he stands on the trade-off between moderate inflation effects and more manufacturing jobs. That stance goes against trade orthodoxies, but it’s not a catastrophe for U.S. consumers. Indeed, the results of the experiment Bongiorni tried in 2005 may not be as dire in 2019 or 2020, if the tariffs stick around; the sentiment that inspired the journalist to forgo Chinese goods is still widespread, so perhaps making it easier to do without “made in China” isn’t such a terrible idea.

To contact the editor responsible for this story: Max Berley at mberley@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leonid Bershidsky is a Bloomberg Opinion columnist covering European politics and business. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.

©2018 Bloomberg L.P.