Here’s how tariffs affect you!
By Sandi Weaver Special to The Star August 14, 2018 12:00 AM
Tariffs are in the headlines as often as we see political ads on TV. What do tariffs do to you?
Let’s look at Apple’s IPhone 6. It costs about $236 to make. The design and software are “made in the USA.” The highervalue components are made in Japan, South Korea, Germany and the United States. China adds in some low-value components and assembles it. China’s share of the total cost is 5 percent, yet the entire phone is considered an import for trade balance statistics.
When you’re the consumer, if a tariff is increased on imported iPhones, you’ll pay more. If Apple decides to make the entire phone in the U.S., you’ll pay more. According to the Massachusetts Institute of Technology, making the entire phone in the U.S. would add $100 to the cost.
When you’re an investor in Apple stock, tariffs may lower the net profit in iPhones, lowering the price of the stock.
Which imports get more expensive to buy with these tariffs?
That’s farm equipment, some cars (Sweden’s Volvo, Germany’s BMW), washing machines, lumber and some health care equipment so far, but the list is rapidly expanding.
The broader hit is the 10 percent tariff on aluminum and 25 percent on steel we’ve levied on Canada, Mexico, Europe, China and just about everybody. You’ll pay more for your beer cans, your Campbell’s soup and your cars (even U.S.made). Sometimes these are small dings to your pocketbook — a couple pennies in a can, but it can be more. Your Harley-Davidson motorcycle will likely dent your checkbook for an extra $2,200.
The increased tariffs on lumber from Canada are adding about $9,000 to the cost of the average single-family home.
Two serious impacts are retaliatory tariffs and job loss.
China, Canada, Mexico and Europe have retaliated with tariffs of their own. We tariff them on what we buy from them. They tariff us on what they buy from us. For example, U.S. farmers grow a lot of soybeans. We consume 33 percent of them ourselves. We export 67 percent. Half of those go to China alone. China is adding a retaliatory tariff on U.S. soybeans and will now buy more from Brazil.
We have 900 firms with 80,000 workers that produce steel. But we have 29,000 U.S. firms with 900,000 workers that use steel. The costs at those 29,000 firms just went up, and their net profits may drop. Firms with lower profits tend to have fewer workers. Firms will also manufacture a product overseas in order to avoid exporting and paying a tariff. GM will make a car in China with Chinese labor to avoid a tariff, rather than make a car in the U.S. to ship to China and pay a tariff.
What does history foretell for your investments?
It’s apparent that experts haven’t yet sorted out the net impact on the average tariff rate, the number of jobs we can expect to lose, the higher prices we can expect to pay, or the loss to our economic GDP.
The markets seem to reflect this, reacting to headlines then settling back to normal levels. It’s difficult to get good data to project the impact of tariffs. Let’s hope cooler heads — and trade negotiations — prevail.