The steep drop in tariff rates on Chinese goods shipped to the United States might have consumers thinking there’s significant relief in sight — at least compared to before. But in practice it might not feel that way.
With timing of the essence given the new rates are only temporary, businesses are rushing to complete orders and get products made in China on ships and planes while tariffs are at a minimum of 30%, versus 145% — and they are paying a premium to do so.
That’s bound to eat into the savings that businesses would otherwise see from lower tariffs. For consumers, that means the price of many goods from China, America’s second-top source of imports, is poised to remain elevated.
The revised rates came after US and Chinese government officials met in Geneva earlier this month, resulting in both nations lowering tariffs on one another’s goods for 90 days as talks continue.
But there’s no saying for certain whether the partial truce will last the full 90 days. Even if it does, it’s unclear what level the new tariffs will be.
Paying a pretty penny
Andrew Rader, managing director within the consumer practice at Maine Pointe, a global supply chain and operations consulting firm, said clients he advises are seeing Chinese production costs rise across the board.
Factory owners are offering overtime pay for employees and offering other kinds of bonuses, which is unusual, he said. Key raw materials used in consumer goods, such as plastics and metals, have increased “upwards of 10% or more.”
On top of that, due to the surge in orders, more factories are increasing the minimum order size that companies are required to place.
That means businesses may be stuck taking in higher-than-desirable inventories, given the costs associated with storage, let alone paying more to have those products produced. Instead of three months of inventory, he said, some are having to pay for as much as six months’ worth of products.
After all those production costs are tallied, Rader estimates that American businesses importing goods from China are paying 15% to 25% more to have goods manufactured there. And that’s before transportation costs, which are also rising due to the surge in demand, and the 30% tariffs still in place.
But compared to when there was a 145% tariff, it’s still a sizable saving, Rader told CNN.
The price American consumers pay
The added costs businesses are covering are likely to get passed on to the consumers. However, as is the case with any tariff, it’s not necessarily a one-to-one ratio, where prices rise by the same amount as the additional expenses. That’s because businesses tend to absorb some of the added costs without raising prices as much in order to retain customers.
But it’s not only prices that consumers should be concerned about, said Andy Tsay, a business and analytics professor at the Leavey School of Business at Santa Clara University.
“Any cost and risk added to the supply chain has to be expressed somehow, not necessarily through an increase in the end price, but possibly in less conspicuous ways,” he said. For instance, more goods could go out of stock given the challenges and costs businesses are encountering with importing more goods from China.
Another consideration: “It might be that items go on sale less frequently and with smaller discounts.”
There’s also the possibility that new products don’t make it to market altogether.
In addition, the back and forth could mean that US consumers are stuck with higher prices as a result of President Donald Trump’s tariffs, even if he eventually modifies the rate.
“If businesses learn from this forced experiment that they had been underestimating customer willingness to pay for an item, prices are unlikely to come all the way back down even if the tariffs go away,” Tsay said.
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