Since the start of the Trump administration’s trade war last year, economists and executives have repeatedly warned that consumers will ultimately end up footing the bill for tariffs through higher prices.
That’s true. It just might not feel like it.
A recent economic study estimated that the 10 percent tariffs imposed last year on $200 billion in Chinese products cost the average American household about $414 — money out of your pocket that helped cover the rising cost of importing those goods. But the trade war hasn’t occurred in a vacuum. The financial markets have twitched with almost every tweet, threat, hint and official imposition of taxes made by President Trump, including by depressing the price of crude oil. The result: Fear of the effects of the trade war has helped offset the effects of the trade war.
“The things that are being hit by the tariffs are going to be more expensive,” said Matthew Luzzetti, chief United States economist at Deutsche Bank in New York. “But on the other hand, if oil continues to decline, a big portion of the basket of goods that people consume will become cheaper.”
That’s not necessarily reason to cheer. The markets are reflecting concerns that an escalating trade war — the United States last month raised the tariff rate to 25 percent and has threatened to expand tariffs to an additional $300 million in Chinese goods — could tip the economy into a recession. The effects of that would be more serious than higher consumer prices.