$82 a year - cost of trade war so far to typical American household

For the tariffs already in effect, this is how the US$60 per average American household breaks down: about US$7 a year extra for the washing machine and solar tariffs, US$20 for the steel and aluminium tariffs, and US$33 more because of the newly tax
For the tariffs already in effect, this is how the US$60 per average American household breaks down: about US$7 a year extra for the washing machine and solar tariffs, US$20 for the steel and aluminium tariffs, and US$33 more because of the newly taxed Chinese goods that went into effect last week.PHOTO: AGENCE FRANCE-PRESSE

But estimate does not account for full range of ways businesses, consumers will react

NEW YORK • The trade war has begun, and it arrives with potentially far-reaching consequences for international relations and the global economy. But what about American households?

For the more than US$80 billion (S$109 billion) in tariffs the US has placed on washing machines and solar energy cells and panels; on most steel and aluminium imports; and on hundreds of products made in China, the short answer is US$60 (S$82) a year per household. That is about one-tenth of 1 per cent of a typical US household's income.

This does not include the potential impact of taxes on US$200 billion worth of Chinese imports that the Trump administration enumerated this week; the earliest those could go into effect would be September. Including those tariffs would bring the total annual costs for the average family in the United States to US$127.

The household impact numbers are based on analysis of government data by Mr Kirill Borusyak, a post-doctoral associate at Princeton University, and Dr Xavier Jaravel, an economics professor at the London School of Economics.

They should be thought of as rough estimates, as they do not account for the full range of ways businesses and consumers will react; they assume, for example, that companies pass the entire cost of tariffs on to consumers rather than taking a hit to profit margins.

The numbers also do not include the costs to some Americans in their roles as producers, as opposed to consumers - people who could lose their jobs or see lower incomes because other countries retaliate by taxing US products.

One reason these numbers are relatively small is that the United States doesn't really import that much relative to the size of its economy. Even though it imported nearly US$2.2 trillion of goods in 2015, its imports were only 12 per cent of GDP, the lowest percentage among advanced nations. And only about 3 per cent of US imports (based on 2015 figures) are subject to these initial waves of taxes.

For the tariffs already in effect, this is how the US$60 per average American household breaks down: about US$7 a year extra for the washing machine and solar tariffs, US$20 for the steel and aluminium tariffs, and US$33 more because of the newly taxed Chinese goods that went into effect last week.

A trade war can affect the economy in several ways, however. A tariff on a product from China might raise prices for that product in other countries. If Chinese suppliers are facing a tariff from the US, suppliers in the US and other countries might feel as if they have a little room to raise their prices as well.

Associate Professor Katheryn Russ at the University of California, Davis says it might add a further US$20 to the estimate.

It is also important to remember that these are average costs. Households that buy expensive items like trucks and washing machines this year will pay more because of the tariffs than households that do not.

"The issue with the tariffs is that they're really distorting," Prof Russ said. "They don't fall evenly across the population, and they hit us in random ways."

One reason these numbers are relatively small is that the US does not really import that much relative to the size of its economy. Even though it imported nearly US$2.2 trillion of goods in 2015, its imports were only 12 per cent of GDP, the lowest percentage among advanced nations. And only about 3 per cent of US imports (based on 2015 figures) are subject to these initial waves of taxes.

Mr Borusyak and Dr Jaravel also ran estimates on what would happen if the US imposed a 10 per cent tariff on all goods imported from China, as suggested in a report by Bloomberg. In that case, it would cost the average American household US$270.

The first wave of tariffs has been focused on things like industrial equipment that consumers pay for only indirectly. The Trump administration has threatened escalation that could reach US$1 trillion or beyond. In further waves, more goods directly purchased by consumers, such as electronics and automobiles, would probably be covered, meaning a more direct hit to consumers' wallets.

"At some point the logic breaks down," said Dr Jaravel, who added that there may be tariffs on "some products in which we cannot substitute and then we are in big trouble". 

NYTIMES

A version of this article appeared in the print edition of The Straits Times on July 14, 2018, with the headline '$82 a year - cost of trade war so far to typical American household'. Print Edition | Subscribe