- The economic windfall from the U.S.-China trade spat won't affect U.S. consumers as much as people think, CNBC's Jim Cramer argues.
- The "Mad Money" host points to the action in the retail stocks to back up his theory.
On a very bullish day for the broader stock market, the declines in the retail sector were speaking volumes to CNBC's .
With the trade dispute between the United States and China heating up, the "Mad Money" host figured the weakness stemmed from "a belief that the retailers will have to eat the tariffs, meaning they can't pass on all the price increases to consumers."
"Not only that, but Amazon could always undercut any company that makes goods in China and sells them here," he said on Thursday.
The retail stocks' dip came after the United States and China exchanged tariffs on each other's goods earlier this week. On Thursday, the Chinese commerce ministry said it hoped the United States would correct its behavior in the trade dispute.
But given how vocal leaders in the retail space have been about the unfavorable effects of tariffs on their businesses — and Amazon's growing pricing power — Cramer wondered if they would take the brunt of the trade war's negative effects.
"A combination of the competition from the retail Death Star, and either higher prices or higher costs caused by tariffs, could very well mean that the department stores can't make their numbers," he said. "That's why the stocks were shelled. Makes sense."
Cramer also did some quick math to back up his point. If President Donald Trump follows through with his plan to raise tariffs to 25 percent from 10 percent by the end of 2018 and all of the costs get passed down to consumers, it works out to roughly $1,000 per family per year.
"Not ideal," he admitted, "but it's also highly unlikely. If the tariffs really were going to fall entirely on the heads of consumers, the retail stocks wouldn't have had such a mess today. Plus, we did just get a tax cut [that] more than makes up for the tariff figure every time I do the numbers."
"Now, this may just be one big rotation out of growth into value, with people selling the expensive stocks and swapping into stocks that sell at a discount to the ," the "Mad Money" host said. "But the bottom line is that's a far more sustainable rally than the other way around."
Shares of the SPDR S&P Retail ETF, comprised of retail stocks including Nordstrom, Wayfair and Supervalu, were up a modest 0.33 percent at the end of Thursday's trading session. Department store stocks Macy's and Kohl's sank 1.04 and 3.23 percent, respectively, into the close.
Retail industry experts have warned that tariff escalation could squeeze American consumers, pushing prices higher and sales lower. In June, the CEO of the National Retail Federation told CNBC that tariffs would likely "erase" the positive effects brought on by tax reform.
WATCH: Cramer explains why the rally's for real
Disclosure: Cramer's charitable trust owns shares of Amazon and Nordstrom.
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