Tariff Tracker: From Basic to Luxury Goods, Proposed Tariffs to Impact Low-Income Households Most

From Basic to Luxury Goods, Proposed Tariffs to Impact Low-Income Households Most

In July 2018, the Trump administration announced plans to place 10% tariffs on $200 billion worth of imports from China. The list of products encompasses a variety of consumer goods ranging from basic commodities to high-end luxuries. If enacted, the impact of these tariffs on consumers will depend on household income.

Consumer products made in China are generally less expensive and more basic or lower-quality versions compared to those that are made in the US, Canada, or Europe. Therefore, Chinese consumer products are widely sold at mass merchandise and discount retail outlets – e.g., Dollar Store, Dollar Tree, Target, and Walmart – but also commonly sold on Amazon.com and other e-commerce outlets.

The Walmart Effect

Discount retailers often have tight margins, and their ability to absorb cost increases are limited. As such, the additional cost imposed by these tariffs will likely be passed along to consumers in the form of higher retail prices.

As Walmart – and other discount outlets -- stocks a variety of consumer products made in China, their most frequent customers (consumers with household incomes under $100,000 per year) are likely to be disproportionally impacted.

For example, consumers making less than $100,000 per year are more likely to report shopping at Walmart 3 or more times a month. In contrast, higher-income consumers are more likely to report that they only occasionally or never shop at Walmart

Given the financial profile of the average Walmart customer and the company’s reliance on Chinese imports to inexpensively stock its shelves, lower-income households stand to suffer the most from the US-proposed tariffs.

Tariffs Target Routinely Purchased Consumer Products

In the latest list of $200 billion in Chinese goods facing a 10% tariff, the Trump administration includes a number of products that many households consider routine purchases.

• paper products (e.g., writing and drawing paper, envelopes, toilet paper, facial tissues, napkins, paper plates and cups)
• consumer-grade pesticides, herbicides, insecticides
• soap
• furniture polish

Other products under consideration for tariffs include common household itesms such as

• lighting (e.g., ceiling, wall, floor, and table light fixtures; lamp shades; Christmas lights)
• apparel & accessories (e.g., hats, lace, rainwear, handbags, luggage, leather gloves and belts)
• decorative items (e.g., wicker and rattan bags and baskets, paint)
• appliances (e.g., refrigerators, freezers, stoves, ovens)
• consumer electronics (e.g., digital cameras, video cameras, televisions)
• tools (e.g., saws and blades, pliers, files, tweezers, hammers, screwdrivers, chisels, wrenches, crowbars, caulking guns)

In many cases, value-added and higher-quality versions of these items are available from other countries, but typically at higher price points. The more basic or entry-level versions of these products available in the US are commonly imported from China and will thus be subject to price increases.

Luxury Items Impacted, but Luxury Consumers?

Although most Chinese imports to the US are generally lower-cost and considered lower-quality than products made elsewhere, the Trump administration’s tariffs will impact a range of Chinese luxury goods as well, including

• leather gloves, belts, and other clothing accessories
• hand-hooked rugs and rugs made from natural fibers
• handmade lace
• hats (e.g., fur, wool, cotton, knit, crochet, felted)
• marble, granite, travertine, and other monumental or building stone
• silver tableware and flatware
• boats (e.g., sailboats, motorboats, inflatable boats, canoes, yachts, rafts)
• perfume & essential oils

Wealthier consumers are more likely to buy pricier versions of these products sourced from someplace other than China, such as the US, Canada, Europe, or some other specialty source country (e.g., Brazilian stone, rugs from the Middle East, North African oils and perfumes, exotic Australian leathers).

However, if a middle- or working-class consumer were looking to splurge on a similar item, the version imported from China might be selected as a more affordable option. If enacted, the tariffs would reduce the affordability of Chinese luxury goods.

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About the Author:

Jennifer Christ is the Manager of Consumer and Commercial Products.