An increase in tariffs on China-made imports could have massive impacts at retail, costing shoppers an extra $31 billion.
A new study released by National Retail Federation (NRF) last week examined how ending permanent normal trade relations (PNTR) trade status with China could drastically change the U.S. market for goods like toys, furniture, apparel, household appliances and footwear, as policymakers debate methods for holding the country accountable for its predatory trade practices.
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PNTR represents a legal status that extends standard tariff rates across U.S. trading partners. China’s PNTR status was approved in 2000, and it officially joined the World Trade Organization (WTO) in December 2001.
China and the U.S. have been embroiled in a trade war stemming from the Asia superpower’s unfair trade practices, forced technology transfers and IP theft, leading to the implementation of additional punitive tariffs placed on China-made goods for the past six years. The Section 301 duties has done little to change the country’s trade behavior, and lawmakers are looking to turn up the heat.
“The calls to reduce U.S. sourcing of goods from China seem to grow louder by the day,” NRF wrote. “Whether it is dubbed ‘decoupling,’ ‘delinking’ or ‘disengaging,’ the objective is the same: to reduce the role China plays in U.S. supply chains.”
Eliminating China’s PNTR status would subject finished goods and inputs to higher duties—and NRF argues that U.S. shoppers would be the ones paying the bill. “The idea is to increase the costs of goods and inputs imported from China, thereby motivating U.S. buyers to shift purchases of Chinese-made goods to those made in other countries, including the United States,” it wrote. “Our results show that, even accounting for (limited) alternative sources of supply, the proposed tariffs would have a negative impact on American consumers totaling billions of dollars.”
Using a modeling strategy for “industry-focused globally linked partial equilibrium analysis of tariff policy,” NRF estimated the cross-country impacts of changing tariff rates for detailed product categories. It found that higher duties on imports from China due to the revocation of PNTR could cost U.S. shoppers about $240 per household.
The price of toys would increase the most under this strategy, rising more than 21 percent, or $93 per household, while furniture prices are seen rising 4 percent, accounting for $50 more in U.S. household spend. Footwear MSRPs could increase by 4.6 percent, or $15, representing $1.9 billion total annual value in lost consumer spending, due to the higher prices. Apparel prices stand to grow by 1.8 percent, representing $40 more in spend per American household, and a $5.2 billion loss in consumer spending power.
According to NRF, “very little of the production currently sourced from China can be moved to other countries” with regard to the categories studied. It believes the Section 301 tariffs on apparel, footwear and furniture have already forced U.S. brands and retailers to shift sourcing to the extent possible. The manufacturing of products not yet subject to those tariffs, like toys and household appliances, is so embedded in China that efforts to shift sourcing locales would be extremely challenging, it added. Last year, China was responsible for 81 percent of U.S. toy imports and almost half of American imports of household appliances.
Low-income households, which are forced to spend higher shares of their incomes on these products than others, would be disproportionately impacted, NRF added. The price hikes would add to the price pressures already being felt due to high inflation, and efforts to further shift sourcing away from China could increase the risk of supply chain disruptions and product shortages, further inconveniencing shoppers.
“Even though significant efforts have been made in recent years to diversify sourcing, China continues to play an important role in the supply chain of many retailers and other global industries, from sourcing raw materials to manufacturing and production,” NRF vice president of supply chain and customs policy Jonathan Gold said. “It would be impossible for American families to escape the higher costs from dramatic tariff increases on necessities such as apparel, footwear, furniture, appliances and toys.”
