With Trump's trade war with China set to start impacting consumer goods in early September, experts say it may pay to start your holiday shopping earlier than usual this year.
The Trump administration announced on Aug. 1, that it planned to levy tariffs of 10% on over $300 billion of Chinese imports. However, a little more than a week later, the administration changed course, delaying tariffs on electronics such as smartphones, video game consoles, as well as some clothing and toys, until December.
"We're doing this for the Christmas season," President Donald Trump told reporters on Aug. 13. "Just in case some of the tariffs would have an impact on U.S. customers."
Tariffs are taxes are paid by the importer, not the country exporting the product. The Trump administration has introduced the tariffs in an effort to bring China to the negotiation table after claiming the country has unfair trade practices that hurt U.S. manufacturing. But many times, it's the consumer who's stuck paying a higher price for a product — an issue that President Trump tacitly acknowledged when his administration decided to delay the tariffs on popular holiday gift items.
Once a tariff is imposed, businesses have a few options. They can pass on the tax to consumers by charging higher prices, they can eat the difference to stay competitive or they can push back on the supplier to lower the base cost of the product to account for the new taxes. In some cases, companies may even switch to a non-Chinese supplier.
What items could see price hikes
While some electronics and toys may be spared for now, the list of goods that will be impacted by the Sep. 1 tariffs still spans 122 pages and ranges from everyday grocery items like milk and tomatoes to household staples like diapers and soap, and even products like alarm clocks and sports equipment (and yes, that includes skis).
With such a wide range of products in play and uncertainty around how retailers will respond, it's hard to predict exactly how much these tariffs will affect the everyday shopper. Yet the two areas where you will most likely see price increases are on clothing and footwear, says William Reinsch, senior advisor at the Center for Strategic and International Studies and contributor to The Trade Guys podcast.
Last year, over 40% of all clothing and almost 70% of the footwear sold in the U.S. was imported from China, according to the American Apparel & Footwear Association. And while Trump says the delay of some tariffs is meant to protect holiday shoppers, the Association says many common Christmas items and decor still fall under the September round of tariffs, including holiday stockings.
Another area that may take a hit is your grocery budget. A "considerable amount" of the food we buy at supermarkets, for example, is connected to Chinese suppliers, says Phil Lempert, a food industry analyst and editor of SupermarketGuru. The product on the shelf may not come directly from China, but Chinese companies supply ingredients used to create many food items.
The effect on consumers
JP Morgan analysts estimate the direct and indirect effect of tariffs could end up costing American families an average of $1,000 this year. That's up from the $600 additional costs financial analysts previously predicted would hit Americans after the White House upped the tariff rate on non-consumer goods to 25% in May.
While the administration could provide farmers and the agricultural industry subsidies to offset the tariffs levied earlier this year, "there is no simple way to compensate consumers," Dubravko Lakos-Bujas, JP Morgan's head of U.S. equity strategy, wrote in a note to clients.
"The people who will be hit the hardest [by the tariffs] are poor people," Reinsch tells CNBC Make It. Consumers with lower incomes tend to shop at budget retailers such as dollar stores and big box chains — which source a lot of products from China. And simply avoiding products with labels saying 'Made in China' may not help, since many items on the shelves have ingredients or parts that originated in China, even if the final product was manufactured elsewhere.
It will, however, take a while for the full effect of the tariffs to kick in, Reinsch says. That's because many of the products that will be on shelves in September and October are already in the U.S. "On Sept. 2, if you go shopping, you may not notice a big difference unless the retailer decides to take advantage of the situation and raise prices prematurely and blame it on Trump," he says.
As you get closer to Christmas, these latest tariffs on Chinese goods are likely going to "bite more," he adds, saying budget-conscious shoppers may want to start some of their holiday shopping early to avoid paying a premium.
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