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Trump and Xi declared a trade war truce, but it won't make the holidays cheaper—here's why

Shoppers are seen outside Macy's Herald Square in midtown Manhattan in New York. 
Timothy A. Clary | AFP | Getty Images
Shoppers are seen outside Macy's Herald Square in midtown Manhattan in New York. 

Over the weekend, after U.S. President Donald Trump met with Chinese President Xi Jinping, the White House announced a change of plans: Trump will hold off on raising tariffs on Chinese products to 25 percent for 90 days.

How will the temporary truce affect you in the midst of this holiday shopping season? It doesn't mean things will become cheaper; it just means they won't necessarily get more expensive.

"What the president announced was merely a pause in escalation," says David French, senior vice president for government relations at the National Retail Federation. The 10 percent tariffs on $250 billion in Chinese products coming into the U.S. remain in effect, and companies have already responded to those tariffs by increasing the prices of some goods.

Tariffs are taxes on imported goods but, according to French, they're functionally just "taxes on American consumers."

And despite the truce, the future remains uncertain. On Tuesday, Trump threatened China if negotiations fall through, dubbing himself a "Tariff Man." In September, he said, on top of the goods already targeted, he had an additional $267 billion in tariffs "ready to go."

Escalation of the conflict could end up further increasing prices for consumers.

What may already be more expensive

In September, the Office of the United States Trade Representative issued a list of Chinese products that the U.S. is targeting. It includes everything from vegetables and seafood to chemical elements and construction materials.

After Trump's tariffs were originally announced, many American companies said the tariffs could force them to raise prices, including Walmart, Gap, Coca-Cola, General Motors and Macy's. Notable goods that may be affected include TVs, homes and home renovations, washing machines, solar panels and electronics.

"It's difficult to put a dollar figure on how much the average American consumer is going to have to pay," says French. Some retailers absorb costs of tariffs themselves instead of increasing prices for customers.

But a few analyses have come up with numbers. Kirill Borusyak, a postdoctoral associate at Princeton University, and Xavier Jaravel, an economics professor at the London School of Economics, find that 10 percent tariffs will cost the average American family $127 per year.

"It's difficult to put a dollar figure on how much the average American consumer is going to have to pay." -David French, senior vice president for government relations at the National Retail Federation

Their study assumes consumers bear the full cost of the tariffs and does not account for wage losses. It also notes that the effect of tariffs on you personally will vary based on what you buy, and the extra amount you'll pay could increase significantly if you make more substantial purchases.

In all, the impact of the tariffs at a rate of just 10 percent has been "relatively negligible," says French.

The truce is good news for now

"In general the 'tariff truce' should be good news for customers because it likely puts an end to what could have been an escalation into a full trade war, which could have been much more costly than the current state of affairs," says Jaravel.

While the negotiations may result in better trade deals for the U.S. in the long term, for the duration of the truce, French says, "We're going to be anxious about what will be resolved between the U.S. and China."

A study commissioned by the lobbying shop for Koch Industries and conducted by consulting firm ImpactECON found that, if the 25 percent rates went into effect on January 1, tariffs would have cost American households an estimated $2,400 each in 2019. But that is also a cumulative effect accounting for higher prices, lost wages and lost wage investments.

"The future is bleak if they continue to rack up on tariffs," says French.

Don't miss: Trump's $250 billion in China tariffs are now in effect—here's what could get more expensive

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