President Donald Trump announced tariffs on steel and aluminum a little over a year ago. Tariffs on Chinese goods started kicking-in a few months later, with the biggest piece coming in late September of 2018 when a 10 percent import duty was applied to $200 billion of Chinese goods.
Despite many claims that the tariffs would hurt U.S. consumers, they have not. For months, data have defied predictions of tariff-led inflation. And now it is indisuputably clear: the metals and China tariffs have not raised consumer prices.
The Department of Labor said Friday that its consumer price index was up just 2.0 percent compared with a year ago, indicating that prices are not rising particularly quickly. The Federal Reserve says it targets 2 percent inflation, although it uses a different measure of prices.
“Trump’s trade war may soon hit consumers’ wallets and paychecks,” NBC News declared in a headline last year.
“Tariffs will surely lead to higher prices for imported goods and, to a lesser extent, prices for non-imported goods that use imported materials,” the University of Pennsylvania’s business school Wharton reported.
“Tariffs are about to hit consumers, and it won’t be pretty,” CNBC claimed.
“Trade restrictions, by their nature, result in price increases for the goods in question. If the price of steel and aluminum goes up, manufacturers will be forced to pass those costs onto American consumers,” wrote Tori K. Whiting, the Jay Van Andel Trade Economist at the Heritage Foundation’s Roe Institute for Economic Policy Studies.
Commerce Secretary Wilbur Ross, however, said all of these predictions of higher prices were wrong. To the contrary, Ross argued tariffs would have little to no effect on U.S. consumers. He held up cans of Campbell’s soup and Budweiser beer to illustrate his point that the metals input into most consumer prices was very low and unlikely to rise.
When prices did not rise as predicted, the critics did not back off their claims. Many just moved the time frame, arguing that the forecast price increases were just taking time to move through the economy. But now that a year has passed, that an increasingly absurd position.
Soup, Beer, Veggies, and Trucks
Take the prices of soup and beer, Secretary Ross’s examples. The price of soup is down 0.3 percent compared with a year ago. The price of beer consumer at home is down 0.3 percent.
Of course, not all soup is canned. Beer is sold in bottles. The government doesn’t track canned beer and canned soup separately. So it is possible that canned variations have seen more price inflation, offset by price declines in bottled beer and soup in cardboard containers. But that’s largely irrelevant from the consumers perspective since shoppers can easily just switch to the cheaper category.
Prices of canned fruits and vegetables, another category of consumer goods that was widely predicted to see prices rise because of increased aluminum costs, are up by 2.9 percent. In April, prices fell by 2.2 percent after rising by 2.1 percent a month earlier. This suggests that very little of this is due to the price of aluminum, which has not been so volatile. Instead, it’s what’s in the cans that is driving the price higher. A month ago, fresh vegetable prices were up 7.7 percent year over year. Vegetables fell by 0.9 percent in April, bringing the year over year gain down to 2.2 percent.
What’s pushing vegetable prices up so much? Mother nature. Floods in the Midwest and California hit farmers hard. They came at a particularly bad time for California’s vegetable crop, hitting the supply of lettuces, greens, broccoli, cauliflower, celery and strawberries. Lettuce prices are up 15.9 percent for the year, which is actually a decline from the 18 percent gain recorded a month ago. Prices are expected to return to normal by summer.
The upward pricing pressure on beer consumed in bars and restaurants, which is notable because the price of beer kegs has reportedly gone up because of the aluminum tariffs, is no longer showing up. Beer consumed outside of the home is up just 1.7 percent compared with a year ago.
Car and truck prices are perhaps the most important consumer item that tariff opponents claimed would be pushed up by the metals tariffs.
“U.S. President Donald Trump’s steel and aluminum tariffs will boost car prices by hiking commodity costs for manufacturers, automakers have warned,” Reuters reported last year
The reality is the car and truck prices have hardly moved. Compared with a year ago, car prices are up just 1.4 percent. The price of new trucks up just 1.2 percent.
Televisions, Computers, and Appliances
Many of the categories of consumer goods that are largely manufactured abroad also saw steep declines, defying predictions that the China tariffs implemented last year would weigh on consumers.
Tools and hardware were often cited by those promoting the “tariffs are taxes on consumers” narrative. But prices on these are up just 0.2 percent compared with a year ago.
The prices of televisions have crashed. In April, prices fell 1.4 percent, the ninth consecutive month of declining prices. Compared with a year ago, television prices are down 18.8 percent. This steep decline may reflect foreign manufacturers competing with each other for market share by dumping televisions on the U.S. market. (There are no real domestic manufacturers for anti-dumping regulations to protect so it is unlikely the Commerce Department will take any action here.)
The price of computers, digital homes assistants, and phones were predicted to see upward pressure from tariffs on China. But computers and related hardware prices are down 4.4 percent compared with last year. Phone prices fell again, for at least the eighth consecutive month, and are now down 14.4 percent compared with a year ago. Note that mobile phones were excluded from the first two rounds of China tariffs.
We’re now more than a year into the anti-dumping tariffs imposed in January of last year on washing machines. These were intended to drive up the price from artificially depressed levels and accomplished that goal last year. The annual price gains are now measured against the tariff-led higher prices, so there’s just a 3 percent rise now in the data.
The broader “major appliance” category, which was pushed up by the sharp rise in washing machines, saw a monthly rise of 1 percent. Compared with a year ago, prices are up 5.6 percent gaint. Note that this is the second consecutive month of deceleration from February’s 11.1 percent year-over-year gain. That deceleration suggests the price rise is probably residual gain from the washing machine tariffs showing up rather than either China or metals tariffs.
Made in China 2019
The tariffs on Chinese-made goods also do not seem to have had much of an effect on consumer prices. Initially, these applied to $50 billion of imports from China and were largely focused on technology goods. In late September, however, the China tariffs were broadened to cover an addition $2o0 billion and a wider array of consumer goods.
The prices of furniture and bedding, one of the largest categories of China-made imports, and are down 2.8 percent annually.
Toys, another big China import category, saw prices fall by a staggering 9.8 percent. Note that most toys imported from China have not yet been subject to tariffs but the decline so far means that even if they are included in later tariff rounds, consumers will still likely be paying less than they were a year ago.
Prices of sports equipment are down 2.7 percent. Most apparel was excluded from the first two tariffs rounds. Prices here are down 2.2 percent compared with a year ago, again implying there is room for tariffs without squeezing consumer wallets.
Auto parts prices are up just 1.9 percent compared with a year ago.
Once again, the consumer price data has largely demolished the notion that tariffs are squeezing consumers. Prices pressures remain muted, with increases on heavily imported and newly tariffed goods only showing up in major appliances, largely washing machines. Meanwhile, phones, computers, and especially televisions have plummeted in price. Beer, soup, and cars show no tariff pressure at all. Baseball mitts and other sports equipment are cheaper. Cars and trucks sell for just about what they did before tariffs were imposed. This suggests that if tariffs are having any effect at all it is not to raise prices for households generally but to shift prices between items, so that major appliances rise while televisions and computer fall.
That does not mean that prices will remain low or tariffs will never push prices up. But it demonstrates that even after several months of tariffs, prices on consumers are not rising.
The low prices may indicate that the burdens of tariffs are falling on foreign producers and on intermediate goods producers. This can happen when export prices fall in reaction to tariffs, either because manufacturers seek to maintain market share but discounting their goods or because foreign currencies decline against the dollar.
Those who predicted tariffmageddon for consumers do not have a leg to stand on.