WASHINGTON — President Donald Trump announced Tuesday, Aug. 14, that he is ending his war on Christmas.
The president's decision to delay some tariffs on $300 billion of Chinese imports set to take effect next month may have been motivated by an interest in shoring up the stumbling stock market. And investors responded with gusto, with the Dow Jones industrial average surging on the news to close up 1.42 percent.
But Trump's call also came with the closest thing he's offered yet to an admission that American businesses and consumers are bearing the burden of his levies on Chinese goods.
"We are doing this for the Christmas season, just in case some of the tariffs would have an impact on U.S. consumers," Trump told reporters before traveling to Pennsylvania to deliver a speech. "So far they've had virtually none. The only impact has been that we've collected almost $60 billion from China, compliments of China. But just in case they might have an impact on people, what we've done is we've delayed it so they won't be relevant for the Christmas shopping season."
The president's claim that the impact of existing tariffs on American shoppers has been "virtually none" is provably false. Yet the acknowledgment that consumers would be on the hook for tariffs broke new ground for Trump, who has insisted for months, against a consensus among economists and a raft of data, that the Chinese are footing the bill for his trade war.
Trump's decision exempts roughly half the $300 billion in Chinese goods set to face a 10 percent levy next month. Now, those items - including cellphones, laptops, toys, Christmas tree lights, and nativity ornaments - won't see the tariff hike until Dec. 15, largely after the Christmas shopping season. A number of products are still in line to face the import tax next month, including food products, glassware, sneakers and suits.
The Trump administration tailored earlier rounds of tariffs - now amounting to 25 percent on $250 billion of Chinese imports - to hit intermediate goods, rather than finished products on store shelves, to try to limit the pinch on American shoppers. The levies raised prices on consumers anyway. "Economics 101 tells you that tariffs are inflationary. Producers are feeling the impact of past tariffs and passing them on to us," Ryan Sweet, director of real-time economics at Moody's Analytics, tells me.
The evidence is overwhelming.
Goldman Sach's economists wrote earlier this year that "the costs of US tariffs have fallen entirely on US businesses and households, with no clear reduction in the prices charged by Chinese exporters." Further, they found, "the effects of the tariffs have spilled over noticeably to the prices charged by US producers competing with tariff-affected goods."
The findings are backed by the International Monetary Fund, whose researchers have concluded that "tariff revenue collected has been borne almost entirely by U.S. importers . . . Some of these tariffs have been passed on to U.S. consumers, like those on washing machines, while others have been absorbed by importing firms through lower profit margins."
Zooming in on individual products facing higher import taxes makes the effects even clearer. "The price of sewing machines, which were hit in September by the original 10 percent tariff rate, have risen 10.3 percent in the 12 months through March," Reuters reported in the spring. "That is the biggest annual gain since the Labor Department started tracking prices for the appliance in 1997." Prices for bicycles, which were also targeted, have similarly risen.
White House economic advisor Larry Kudlow last week dismissed suggestions the trade war is taking a bite out of household budgets. "Any consumer impact is very, very small," he told reporters. But the nonpartisan Tax Foundation estimates a typical family of four will see increased costs of $850 a year from the China tariffs already on the books and face an additional $350 from the levies Trump is partially, and temporarily, delaying.
The administration needs to pay extra care to protect consumers, since their spending has been shoring up the aging, slowing economic expansion. As Sweet notes, business confidence, business investment, capital expenditures, and hiring have all weakened as trade tensions have escalated. GDP growth slowed to 2.1 percent in the second quarter of this year, down sharply from 3.1 percent in the first quarter - but it would have been even worse if strong consumer spending hadn't helped offset a falloff in business investment.
Trade watchers and economists note that Trump's decision Tuesday doesn't remove the threat posed by the trade war with China. "The climbdown over the China tariffs does not mean a trade deal is now near, not least because China's authorities currently face a much bigger problem, namely, the challenge to their legitimacy in Hong Kong, and that will take precedence," Pantheon Macroeconomics chief economist Ian Shepherdson wrote in a Monday note. "But we can fully understand markets' relief at the lifting of the threat of tariffs on consumer goods just ahead of the holiday shopping season, and the sell-off in Treasuries makes sense too." In other words, for now, Trump has contained the Grinch with a suspicious resemblance to himself.
This article was written by Tory Newmyer, a reporter for The Washington Post.