The Endpoint Effect Of The Tariffs

     People have been wringing their hands over what “Trump’s tariffs” will do to the cost of living. I’ve wondered myself. And so, courtesy of Divemedic, we have this from Moneywise:

     The Federal Reserve Bank of Atlanta found that an additional 10% tariff on Chinese imports, 25% tariffs on Canadian and Mexican imports, and 10% tariffs on other countries could raise consumer prices on everyday retail purchases such as food and beverage items and general merchandise, covering about a quarter of the total consumption basket, by 0.81% to 1.63%, assuming the costs are fully passed to the consumer.

     Now, there are a few phrases in the above that have varying interpretations:

• everyday retail purchases
• general merchandise
• total consumption basket

     If we’re going to be clear, there should be firm definitions for those things… but there aren’t. In this context, the most likely interpretations would be:

• everyday retail purchases being conventional goods purchased and consumed day-by-day;
• general merchandise would cover food, beverages, common impulse indulgences (e.g., Starbucks coffee), and a couple of the more common vices (e.g., tobacco and alcohol);
• total consumption basket would include all other non-durable consumables.

     If those goods come to “about a quarter of the total consumption basket” in dollar terms, then the impact on American consumers will be modest indeed. But the comparison between the magnitude of the tariffs and the projected endpoint impact is what’s really interesting.

     Part of it must be that much that we import from China is manufactured items that aren’t in the category of “everyday retail purchases.” Another part would be that most of what we import from Canada and Mexico is either wholly discretionary or replaceable by domestically produced goods. However, without a minutely detailed definition for the terms above, some mystery is inescapable.

     Whatever the details might reveal, the above is highly reassuring for consumers. But there will be other impacts, specifically on American manufacturers and processors of goods not in the “general merchandise” category. Those impacts may increase the prices of such things as cars and electronics which are assembled here from components fabricated abroad. That having been said, the purchase of such items is normally more deferrable than the purchase of foodstuffs.

     Of course, it’s all projections at the moment. Hard data is months away. But it seems we don’t have to fear block-long bread lines any time soon – especially given how many of the nations targeted for increased tariffs are already negotiating with the Administration for a resolution that would avert them.