Knock-on impact of mounting tariffs comes into view

Knock-on impact of mounting tariffs comes into view

Home construction in Texas, United States.

One impact of tariffs: if US tariffs remain in place, the price of home building materials, including appliances, would rise substantially — pushing housing construction and home purchase prices higher — and that would price some potential US home buyers out of the market. (Above: A house being constructed in Texas, United States.) Photo credit:

The latest round of tit-for-tat tariffs between the United States and China is hitting the trans-Pacific trade, and although it’s too soon to determine the impact on container volume of this wave and past ones affecting a range of goods including steel, the true costs of tariffs is coming into focus.

Much of the industry’s attention has been on the immediate impact of tariffs, affecting more than half of the 13.5 million TEU shipped between the United States and China in 2017, as JOC senior editor Bill Mongelluzzo details in his report on US exporters looking for new markets. In addition to US agriculture exports being hurt, reports are flowing in of US manufacturers laying off employees or holding off on hiring because inputs are too costly.

But beyond the headlines, the tariffs are making structural changes to the US economy that will impact consumer and export demand for the coming years. The changes come in many forms and vary in the degrees they can be measured, although they all show the potential long-term damage shippers face.

Lost agriculture markets: The US agriculture industry’s response to the Trump administration’s plan for a $12 billion bailout to help tariff-hit farmers was mixed, at best, for good reason. The money is simply a Band-Aid to the formidable risk of farmers losing foreign buyer confidence for years, something agriculture exporters burned by the US West Coast port crisis of 2014-2015 well understand.  

Dampened business investments: The US stock market is still strong, with the MSCI global index of stocks up 2.8 percent and August on track for the best month since January, according to Bloomberg News. But don’t be surprised if companies start scaling back capital investment and hiring as the cost of tariffs bite. In a survey by the Federal Reserve Bank of Atlanta, 30 percent of manufacturers polled said they are reassessing capital investment plans. That’s a formula for reduced imports of factory equipment and inputs, and a further hit to consumer import demand.

Fading tax gains: Similarly, the tariffs are eroding the benefits US corporations won via tax reform, according to the National Retail Federation and libertarian think tank the Cato Institute. Interestingly, the tax reform, which decreased the corporate tax rate from 35 percent to 21 percent, will temporarily increase the US trade deficit, according to the nonprofit Tax Foundation.

Higher housing costs: The auto industry has done a good job of scoping out the impact of steel tariffs, warning that vehicles will cost thousands of dollars more because of the tariffs on steel. Getting less attention but an equal if not greater drive of US imports, from building materials to appliances, is how the tariffs will increase the cost of homes. Buyers won’t see the tariff impact until the wave of new home construction begins next year, as builders have been forced to eat higher material costs of lumber for already contracted construction.

The rolling impact of tariffs will keep coming, although shippers can take some consolation in knowing that, while the goods they ship face tariffs of up to 25 percent, the equipment in which they are shipped won’t.  

Containers were one of five exemptions granted following a public comment period on $16 billion in tariffs that are set to take effect on Aug. 23 and complete the $50 billion in tariffs the Trump administration first floated in April.  

Contact Mark Szakonyi at and follow him on Twitter: @MarkSzakonyi.



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