For some businesses, like farmers and manufacturers, Trump's trade war with China has brought noticeable, negative effects. But what about the rest of us? If you're an entrepreneur doing business domestically or just a household trying to make ends meet, what impact are all these new tariffs likely having on you?
The exact effect of tariffs can be hard to judge for individuals, but a trio of economists from the Federal Reserve Bank of New York, Columbia, and Princeton just did the math to reveal exactly how big a bite out of your budget tariffs are taking. You might be shocked by the number they came up with.
A new $800 item in your household budget.
On economics blog Liberty Street Economics (hat tip to Business Insider), the economists explain that, for their calculations, they took into account not just the direct increase in prices caused by tariffs but the loss of efficiency that happens when firms switch to other suppliers to avoid those tariffs. (This is known technically as "deadweight loss.")
Using the known impact of 2018 tariffs as a jumping-off point, the team extrapolated the likely cost of Trump's recent decision to slap even more taxes on China. They came up with a figure of $211 in direct cost increases per U.S. household for the year. That doesn't sound too bad. But what happens when you factor in the cost of businesses switching to slightly more expensive goods imported from countries not affected by tariffs?
"As a result of this expenditure switching, we estimate that the annualized deadweight loss increases from $132 to $620 per household, bringing the total annual cost of the new round of tariffs to the typical household to $831," they write. Ouch, that $800 a year is going to sting for plenty of families.
Startups are already feeling the pinch.
While you might be surprised to hear how much a strain these latest tariffs are going to put on your budget, many startups are already feeling the pinch, according to top VC Brad Feld. His firm, Foundry Group, invests in many hardware startups, he reported on his blog last week. Tariffs are already causing significant headaches for these companies.
When lobbying efforts to get government relief for startups failed -- "We were basically were told some version of 'go away, you are too small and unimportant,'" reports Feld -- he began studying how the startups he has invested in should handle their increased costs.
If they want to keep up with bigger businesses, the answer was clear. "I started observing what other companies, especially large ones, were doing beyond the lobbying efforts of BigCo that resulted in exemptions. Would they absorb the tariff as an increase in COGS? Would they increase prices? Would they pass on the tariff to the customer?" wondered Feld.
"A little more research showed what is pretty obvious in hindsight. Many BigCos are simply treating the tariff like a tax and passing it on, either directly or indirectly, to the consumer."
Whether it's an additional line on the invoice for the cost of tariffs or simply incorporating these new expenses under the "shipping" or "taxes" line, most big companies are just passing the burden on to their customers. Startups, Feld concludes, "should pay attention, and act accordingly."
Are you feeling the effects of Trump's tariffs?