School supplies, smartphones, and diapers — what to buy now before new tariffs hit

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/ Source: CNBC.com

By Jessica Dickler, CNBC

Going to the store is about to get a lot more expensive.

As trade tensions between the U.S. and China escalate, with both sides increasing tariffs on a widening selection of products, American consumers will see higher prices as soon as this summer.

Tariffs on goods traded between the U.S. and China have already increased in several stages since early 2018. Now, President Donald Trump has added a 25 percent tariff (up from his original proposal of 10 percent) on another $200 billion worth of Chinese imports, and China hit back with 25 percent duties on another $60 billion worth of U.S. goods.

The president has said that China will bear the brunt of the costs from the tariffs, yet experts say the burden will land squarely on U.S. consumers. (Exactly how those higher prices are passed on depends on a number of factors, including whether suppliers absorb the additional cost, source production in another country or increase prices.)

“The supply chain will try to absorb as much of the blow as they can, then they will move those costs forward to consumers,” said David French, senior vice president of government relations at the National Retail Federation. In preparation, retailers are stocking up on merchandise.

Imports at the nation’s major container ports are expected to see unusually high levels for the remainder of this spring and through the summer, according to the NRF’s monthly Global Port Tracker report.

However, “you can only have so much inventory,” French said. It’s more likely that consumers will end up shouldering most, if not all, of the added costs, he said.

When tariffs were imposed on imported washing machines last year, U.S. manufacturers responded to reduced competition from imports by raising their prices and, as a result, more than the full amount of the tariff was passed on in the way of higher prices.

“U.S. consumers paid 125 percent to 225 percent more,” French said, referring to a working paper co-authored by Ali Hortacsu and Felix Tintelnot of the University of Chicago and Federal Reserve Board economist Aaron Flaaen.

In all, the Federal Reserve Bank of New York and researchers at Princeton and Columbia universities conservatively estimated that U.S. tariffs cost American consumers at least $6.9 billion last year.

A separate report from Oxford Economics estimated that tariffs could cost every American household about $800.

As of the latest tally, the new tariffs will mean higher prices on items such as luggage, mattresses, food and cleaning products. The increase is effective on goods shipped starting last Friday.

“We know with certainty that import prices [on those products] will rise in a month or so,” said Katheryn Russ, a University of California, Davis, professor of economics and specialist in international trade.

Still in the works are additional tariffs on sporting goods, camping equipment, shoes, clothing and consumer electronics, including TVs, video game consoles and laptops.

“This round is much more consumer-focused,” Russ said. And once implemented, “households may start to see resulting price increases on these goods in early fall.”

Buy that iPhone or TV now

To get ahead of the next waves of tariffs, Russ recommends buying some items now, if possible — such as backpacks and other back-to-school supplies — rather than holding off until later in the year.

“If you were planning a large purchase six weeks from now, you may want to make that purchase today,” French said. Still, many Americans don’t have that kind of disposable income on hand, he added.

“It’s just getting more expensive,” added Michael Bonebright, a senior blog editor at comparison shopping site DealNews.

For example, “I would immediately buy a smartphone, rather than wait until Black Friday,” he said. The price for a new iPhone could rise by around $160, analysts estimate.

There will be a similar impact on TVs, Bonebright said. “Fifty-five-inch flat screens are at a historic low, which tells me those prices are going to go up.”

Of course, the same rule applies for everyday purchases, where consumers will be harder hit, such as frozen food and paper goods, including diapers and paper towels.

“Stock up now, so you don’t get sticker shock two or three months down the line,” Bonebright said.

As for large appliances, such as washing machines and dryers, which are already more expensive compared with last year, “stay out of that market,” Bonebright said.

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