Higher Prices and Empty Shelves: The Effects of the U.S.-China Trade War

HARI SREENIVASAN: Christiane, thanks. Ana Swanson, thanks so much for joining us. You wrote a piece recently titled “A Tidal Wave of Change is Headed for the US Economy,” which takes a look at the drastic changes that consumers might feel in their homes and other places. But you say that right now we actually haven’t started to feel the full brunt of the impact of the US tariffs on China yet. Explain that.

ANA SWANSON: Absolutely. So tariffs have been in the news for a while, but these changes for the economy really take quite a lot of time to unfold. And if you think about it, it’s really because it takes so long for goods to be shipped from China to the United States. Typically a lot of goods that you’re buying are moving on container ships. When they leave the port in China, it can take 20 to 40 days to show up at US ports. And then it might take, you know, another one to 10 days to be sent by truck or train around the country. So from the time the president put in very extreme tariffs on China at the beginning of April, you’re really looking, you know, kind of to a month timeline before you start to feel the effects for many of these goods. And so it’s really right about now that we’re starting to see, you know, the level of goods coming in through container ships dropping, and that’s something that’s just going to keep intensifying over the coming weeks and months with consumers really starting to feel the effect, I think, going into the summer.

SREENIVASAN: So I’m assuming that as soon as the tariffs happened, if there was a small business in the United States, it was importing things from China, and they couldn’t either afford to or didn’t want to pass on the 140 price percent increase to their consumers, they just stopped ordering, right? 

SWANSON: Yeah, yeah. It is measurable. And we had some new trade data coming out this week as well, which showed that the share of imports from China from March were at a historical low. So definitely those tariffs had led to a pretty sharp drop in trade, especially, as you’re pointing out, for small businesses which may not have a lot of cash on hand, you know, may not be able to pay that tariff price, which has more than doubled the cost of bringing in goods from China. I would add though, it is really important that a lot of businesses, particularly major retailers, did a lot of stocking up since the election and earlier this year. So a lot of big retailers do have, you know, a month or a couple months of inventory on hand, and that has also kind of helped to soften the blow. But, you know, as time goes on and these tariffs on China remain really high, you are going to see that interruption in trade, and retailers can’t cover that pause, you know, forever. Eventually consumers will start to see that in the form of higher prices, some empty shelves, maybe longer wait times or when they’re ordering products or the inability to order certain products at all.

SREENIVASAN: Now, just to keep it in perspective for our audience, are we the biggest customer of China?

SWANSON: Yeah, it’s a really interesting question. So the United States is certainly a major export market for China, but it’s definitely not the only one. So China’s reliance on the United States has fallen in recent years. Used to be, you know, more than a fifth of Chinese products that were headed to the United States some years ago. Now I believe it’s more like 15%, maybe a little bit lower than that. So, you know, most Chinese goods actually are not headed to the United States. It certainly is a major export market, a very important market for a lot of Chinese companies. But China, you know, the Chinese government has been sort of standing up to the Trump administration and trying to make the point that, you know, just because of tariffs, we won’t necessarily fold to your demands or come running to negotiate. And part of that is because the country is more diversified now and has more export markets that it can sell into.

SREENIVASAN: Okay. And let’s look at the other side of that equation. If we, if China is exporting a smaller percentage of what they make to us, are we also importing from lots of other countries? 

SWANSON: Yeah, absolutely. So, you know, since the first Trump administration, since President Trump put very high tariffs in on China in his first term, US imports from China have dropped as a share of overall US imports. So the United States imports now a bigger share of its goods from other countries like Mexico, Vietnam, countries in Southeast Asia. So you really did see this effect when tariffs went in place that the United States started to buy more from other countries rather than China. Now, in some cases, it was very interesting. That was actually just Chinese companies moving to other parts of the world, or Chinese companies sending their parts to other companies and other places in the world. So there’s still a lot of Chinese raw materials and parts that are being imported to the United States, but it did rearrange trade. And it made the US trade deficit with other countries like Mexico, like Vietnam shoot up. And in this term, the Trump administration has kind of focused their sites on those countries now, too. So there’s a bit of a whack-a-mole effect with global trade where you push down, you know, on part of the balloon with China, the trade deficit just pops up in other countries globally.

SREENIVASAN: You know, you have this fascinating graphic which just kind of looks at the impact of Chinese goods in an average American household. Walk us through what you’re trying to illustrate. Because it seems that some household goods, it’s almost completely China and only China that where we’re getting these items from.

SWANSON: Absolutely. Yeah. It’s really remarkable. So my colleagues in graphics put together a visual representation of your house, and you can walk through the house and see, you know, which products mostly come from China or mostly come from other places. And the idea behind it is, yes, I mean, US households buy a lot from China, a lot more than you might think. But in some product categories, China produces nearly all of the world’s supply. So for things like alarm clocks, toasters, baby strollers, grills, fireworks, it’s more than 90% of global products that China is producing. And so the point is that, you know, if we are putting 145% tariffs on China, we’re stopping trade with China, right now, the world just doesn’t have many alternatives. For some other categories of goods, you know, you might be able to switch to buying them from Mexico or buying them from the United States or buying them from elsewhere. But China is just such a dominant manufacturing powerhouse that it has really taken over global supply of some of these goods. And there’s just, there’s really nowhere else to buy your, you know, your thermos or your alarm clock. And so for those types of goods, consumers are more likely to see price increases because of the tariffs.

SREENIVASAN: This past Friday, the de minimis exception for low value packages expired, meaning anything under $800 was exempted from a tariff. So kind of explain if you can, what this means for both Americans and for the Chinese.

SWANSON: So the de minimus exception had allowed retailers to send things in the United, into the United States without paying tariffs as long as they were valued at less than $800, and as long as they were sent sort of directly to the consumer or directly to the business. So basically you had a lot of like individual packages that would come to people’s doorsteps or even to businesses from China, and those weren’t being charged the tariffs in President Trump’s first term. And when he put those tariffs on, we did see a dramatic increase in di minimus shipping. We also saw an increase in di minimus shipping as e-commerce platforms got more popular. So Shein, Temu you know, these platforms that allow Americans to buy goods directly.

So a lot of US manufacturers had complained that this was just very unfair because it was a way for Chinese goods to bypass US tariffs. Other good, other retailers bringing things in via cargo ship would have to pay that tariff, but Shein and Temu weren’t, so it kind of upset the playing field. And so the Trump administration on Friday decided to put an end to that. And so that means that, you know, when you bring those goods into the United States right now, you need to pay 145% tariff. It’s a very dramatic increase on the cost of a lot of, you know, cheap clothing or everyday items that you might be importing. So it is going to be an issue for those platforms. There’s certainly going to have to reshuffle and we may see their business models change or shrink, frankly in the time to come.

SREENIVASAN: There already have been exemptions granted for certain categories of goods that we might be importing, right? Whether it’s auto manufacturing parts or other things. I wonder if we keep adding to that list of exceptions, are these significant enough loopholes where we’re not gonna necessarily feel that? 

SWANSON: Yeah. So the Trump administration started its tariff measures earlier this year by saying there would be no exemptions, no exclusions to a lot of these measures, right? But as time has gone on, we have seen some major carve outs for industry. The most notable one was last month, the president decided to exempt electronics from China. So your iPhone, your cell phone, your iPad are not subject to those, you know, crazy high China tariffs currently. He said that they might be hit with another tariff investigation in the future, but those tariffs are likely to be a lot lower. So that was a very significant source of relief for the electronics industry, and something that seemed to happen after Tim Cook put in of – the CEO of Apple, put in a few strategic calls to the administration and the White House. There was also an exemption for some automakers, although that was kind of more minor carving out tariffs on some parts, but that also followed calls by automakers to the White House.

So concern has been growing that, you know, it’s really the well connected companies that are going to be able to get around these tariffs. And those exemptions, I mean, they really are worth billions and billions of dollars for companies. So if you’re a company, the smartest thing you can do is deploy, you know, your chief executive or your lobbyist to Washington right now, to try to get around those tariffs. But it does, you know, it does raise a question of why electronics from China, why not syringes? Why not baby strollers? You know? What is the logic behind exempting some products and not others? And the administration has not been particularly clear about that. 

SREENIVASAN: We’ve been talking about, you know, what might seem like smaller objects, whether it’s toys or alarm clocks or toasters. But are there any kind of goods that are impacted in our national security pipeline that might be affected and that we should be thinking about?

SWANSON: Well, yeah, in the national security pipeline, I mean, we’ve heard a lot from makers of airplanes and munitions that they are affected by tariffs on steel and aluminum and parts. So you know, those, that particularly raises the cost of building something like an airplane if you have to pay 25% more for your imported materials. I also think the effect on automobiles is really, you know, very pronounced and maybe, you know, not as much a national security effect as an effect for consumers. But a car is the single most, the single biggest purchase that most American households will make in any given year. And so we do have 25% tariffs on imported cars right now. We have 25% tariffs on most parts. A lot of automakers are depending on imported foreign parts. And at some point those price increases are also going to cascade through that supply chain, you know, some automakers choosing to hold off on price increases, others choosing to go ahead. But that will definitely at some point be felt.

SREENIVASAN: With the economists that you speak with and the data that they look at, how will we judge whether or not either side really won this trade war? 

SWANSON: Yeah, yeah. I mean, it’s a very tricky question because, you know, really the US and Chinese economies because of these decades of trade are fairly linked together, right? Our fortunes are kind of linked together. And so severing those connections is gonna be painful for both sides. And I think from the administration, the question is kind of, you know, who will be hurt less? Who can withstand the pain more? And the Trump administration has really argued that China is more vulnerable to the United States because we are a major market, it depends on the United States for jobs. And you know, I think made this calculation that Chinese officials would come to negotiate with them more quickly than they have. But, you know, the United States is also vulnerable. I mean, we, unlike China, are a democracy. So when consumers see prices rise, when they start to see shortages, they can speak up very vocally about that. They can express opinions in the midterms. You know, that’s something that Republicans are starting to get concerned about. And so I think both countries are sort of vulnerable in different ways, both economically and politically to some extent.

SREENIVASAN: One of the key principles that launched this trade war in the first place was the idea that this would bring jobs back to the United States. How do we measure whether that’s happening, how quickly that would happen, and what the impacts of these tariffs are in trying to accelerate that?

SWANSON: Yeah, so I do think that tariffs do work in some instances, right? Tariffs are designed to raise the price of imports, and that makes American consumers more likely to buy domestic goods, right? And there are very real concerns that Chinese manufacturers, because of support from the government or because of other unfair trade practices, they’re able to price their goods so cheaply that American manufacturers just can’t compete anymore. 

And then also with tariffs, you do have other issues. So there are a lot of companies that need to import raw materials and parts, and so tariffs mean that they’re paying a higher price for that, that can make us manufacturing less competitive. So it’s not quite as simple of an equation as you might think. And the Trump administration obviously has been emphasizing that there are companies that are making big investments in the United States. But if you look at the data, it looks like capital expenditure by companies has really fallen off very sharply because of uncertainty due to the tariffs. So you know, actually it seems like companies right now are not being encouraged to invest. They’re really just holding off to see how this tariff policy might pan out and what’s going to be best for them in the future.

SREENIVASAN: So considering that the tariffs now not just impact China, but really every major country on the planet and that there are essentially, there is still a delay and they could be reimposed. What is likely to happen, I guess, in this 90 day window? 

SWANSON: Yeah. So it’s kind of confusing because there’s so many tariff tranches out there, right? But the president announced really major global tariffs on most countries at the beginning of April. And then for dozens of them, he then paused them for a period of 90 days to make trade deals. And so now that sets up a deadline of early July where these countries are racing to try to make some deal with the United States to forestall those tariffs from coming back into effect. And there are, you know, countries that are coming to the US and making offers, and US trade negotiators are quite busy right now. I think the problem is that it’s a very short timeline to do something that’s, you know, very ambitious. So typically a normal trade deal would take, you know, over a year to negotiate.

And here the Trump administration is trying to do deals with the entire world in the span of just a few months. So that’s already very difficult. but again, it just creates a lot of uncertainty about whether tariffs will be going up or down in the next couple months.

SREENIVASAN: Anna Swanson, reporter with the New York Times. Thanks so much for your time.

SWANSON: Thank you so much.