Businesses brace for Trump tariffs on Chinese goods

Businesses are preparing for the spate of new tariffs on Chinese goods promised by former President Trump on the campaign trail, making advanced purchases of imported goods and buying up extra warehouse space ahead of the election.

Trump has pledged to impose a 60-percent tariff on Chinese goods as well as general tariffs of 10 to 20 percent on all imports.

While those numbers are subject to change based on Trump's whims, the former president would have broad power to impose steep new taxes on imports without congressional approval.

Trade and manufacturing experts say Trump's tariff threats are already having an effect on global supply chains.

Sébastien Breteau, CEO of supply chain compliance firm QIMA, said Chinese exports to North America are up 13 percent since the start of 2024 and were up 18 percent between July and September.

“We are seeing a bump, a surge on orders preelection,” Breteau told The Hill.

He said the increase was a result of anticipated tariffs during a second Trump administration, though he noted it’s relatively small compared with the ordering surges that occurred during the pandemic.

“In 2021, the surge was much bigger, but there is a decent level of anxiety,” he said. “They anticipate, but they don’t want to overstock. There is no panic when we speak to our clients.”

Other supply chain experts are seeing similar adjustments from importers, distributors and retailers ahead of a possible shift in U.S. trade policy.

“There’s some of that, where people are going and advancing orders to go and get them in, if you’re importing and concerned about that,” John Lash, vice president with E2open, a supply chain management software company.

Many economists associate tariffs with inflation because the additional cost of the tax make imports comparatively more expensive for the individual or business purchasing the product.

But there is no 1-to-1 correlation between tariffs and inflation, as companies can choose to keep the retail price of the targeted good the same at the expense of their profit margin.

Trade experts have noted that companies brought down margins during the previous round of Trump tariffs rather than deciding to raise prices and add to inflation.

“With the Trump tariffs on China, most retailers didn’t pass on the prices. They just took a cut in the profit,” Lori Wallach, director of Rethink Trade, a nonprofit critical of free-trade deals, said during an online question-and-answer session in July.

Wallach said that because most companies pay tariffs on the wholesale price of a good, they have plenty of room to keep retail prices steady.

“This is one of the biggest myths," Wallach said. "Those Nikes when they come to the U.S. from the factory in China or Vietnam, they cost $15 to buy wholesale. … With a big markup like that, they just don’t raise the prices,” she said.

However disruptive Trump’s China tariffs could prove to be, Chinese retaliation could further amplify their economic effects.

That retaliation could also have targeted political consequences, as Chinese agricultural tariffs aimed at particular subsectors during Trump’s trade war with China during his first term sought to undermine support from the Republican base.

“That was the thinking during the Trump administration, and I think that continues to be the thinking of the Communist Party. They view [tariffs] as a political maneuver,” Diane Rulke, a professor at Carnegie Mellon’s Tepper School of Business, told The Hill.

“They do study the American political system, and I believe last time it was quite effective when they targeted the farm products.”

President Biden kept nearly all of the Trump tariffs in place, and added an additional round of tariffs on $18 billion in Chinese goods in May. Since then, core inflation in the consumer price index (CPI) has descended from a 3.4-percent annual increase to a 3.2-percent annual increase. Overall CPI has eased since then from 3.2 percent to 2.4 percent, close to the Fed’s target range of 2 percent.

Following Trump’s initial trade war with China in 2018, inflation did not increase substantially and remained around or below a 2.5-percent annual increase through 2020 and the beginning of the pandemic.

Goods and services trade with China in 2022 totaled $758.4 billion, with exports valued at $195.5 billion and imports at $562.9 billion, according to the U.S. trade representative. Goods imports from China totaled $536.3 billion in that year.

Biden’s recent China tariffs were targeted mostly at energy technologies but also spanned medical products, loading cranes at ports and steel and aluminum commodities.

Biden also increased tariffs on Chinese goods to 25 percent for steel and aluminum, to 50 percent on semiconductors, to 100 percent on electric vehicles (EV), to 25 percent for lithium-ion EV batteries, to 50 percent on solar cells, and to 25 percent for battery components.

Minerals and metals in particular have increasingly come to the forefront of U.S.-Chinese economic competition, since several of them are key to the energy storage technologies central to diversification of global energy sources.

“Despite rapid and recent progress in U.S. onshoring, China currently controls over 80 percent of certain segments of the EV battery supply chain, particularly upstream nodes such as critical minerals mining, processing, and refining,” the White House noted earlier this year.

United Nations economists noted large price swings in critical minerals in a trade report released Tuesday, asserting that “price volatility has been most acute in markets for some critical energy transition minerals,” particularly lithium, cobalt and nickel.

Just last week, national security adviser Jake Sullivan announced that the U.S. would be launching a critical mineral marketplace to try to pull some of the processing capacity away from China.

“If we and our partners fail to invest, [China’s] domination of these and other supply chains will only grow, and that will leave us increasingly dependent,” he said.