U.S., China increase tariffs as trade war escalates

Click to play video: 'Trump says trade meeting with China set for September is still on'
Trump says trade meeting with China set for September is still on
WATCH ABOVE: Trump says trade meeting with China set for September is still on – Aug 31, 2019

The United States and China went ahead with their latest tariff increases on each other’s goods Sunday, potentially raising prices Americans pay for some clothes, shoes, sporting goods and other consumer items in advance of the holiday shopping season.

The 15 per cent U.S. taxes apply to about $112 billion of Chinese imports. All told, more than two-thirds of the consumer goods the United States imports from China now face higher taxes. The administration had largely avoided hitting consumer items in its earlier rounds of tariff hikes.

READ MORE: ‘They’re on,’ Trump says as tariffs on Chinese imports set to kick in on Sunday

But with prices of many retail goods now likely to rise, the Trump administration’s move threatens the U.S. economy’s main driver: consumer spending. As businesses pull back on investment spending and exports slow in the face of weak global growth, American shoppers have been a key bright spot for the economy.

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As a result of Trump’s higher tariffs, many U.S. companies have warned that they will be forced to pass on to their customers the higher prices they will pay on Chinese imports. Some businesses, though, may decide in the end to absorb the higher costs rather than raise prices for their customers.

WATCH: Pompeo talks China, trade during Indiana visit

Click to play video: 'Pompeo talks China, trade during Indiana visit'
Pompeo talks China, trade during Indiana visit

In China, authorities began charging higher duties on American imports at midday Sunday, according to employees who answered the phone at customs offices in Beijing and the southern port of Guangzhou. They declined to give their names.

Tariffs of 10 per cent and 5 per cent apply to items ranging from frozen sweet corn and pork liver to marble and bicycle tires, the government announced earlier.

After Sunday’s tariff hike, 87 per cent of textiles and clothing the United States buys from China and 52 per cent of shoes will be subject to import taxes.

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READ MORE: Media ‘greatly misinterpreted’ Trump’s comments, White House press secretary says

On Dec. 15, the Trump administration is scheduled to impose a second round of 15 per cent tariffs — this time on roughly $160 billion of imports. If those duties take effect, virtually all goods imported from China will be covered.

The Chinese government has released a list of American imports targeted for penalties on Dec. 15 if the U.S. tariff hikes take effect. In total, Beijing says Sunday’s penalties and the planned December increases will apply to $75 billion of American goods.

Washington and Beijing are locked in a war over U.S. complaints that China steals U.S. trade secrets and unfairly subsidizes its own companies in its drive to develop global competitors in such high-tech industries as artificial intelligence and electric cars.

WATCH: Trump says China wants to resume trade talks

Click to play video: 'Trump says China wants to resume trade talks'
Trump says China wants to resume trade talks

To try to force Beijing to reform its trade practices, the Trump administration has imposed import taxes on billions of dollars’ worth of Chinese imports, and China has retaliated with tariffs on U.S. exports.

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Trump has insisted that China itself pays the tariffs. But in fact, economic research has concluded that the costs of the duties fall on U.S. businesses and consumers. Trump had indirectly acknowledged the tariffs’ impact by delaying some of the duties until Dec. 15, after holiday goods are already on store shelves.

A study by J.P. Morgan found that Trump’s tariffs will cost the average U.S. household $1,000 a year. That study was done before Trump raised the Sept. 1 and Dec. 15 tariffs to 15 per cent from 10 per cent.

READ MORE: Trump orders U.S businesses to stop dealing with China, owners say move will hurt profits

The president has also announced that existing 25 per cent tariffs on a separate group of $250 billion of Chinese imports will increase to 30 per cent on Oct. 1.

That cost could weaken an already slowing U.S. economy. Though consumer spending grew last quarter at its fastest pace in five years, the overall economy expanded at just a modest 2 per cent annual rate, down from a 3.1 per cent rate in the first three months of the year.

The economy is widely expected to slow further in the months ahead as income growth slows, businesses delay expansions and higher prices from tariffs depress consumer spending. Companies have already reduced investment spending, and exports have dropped against a backdrop of slower global growth.

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WATCH: Trump admits ‘second thoughts’ on trade war with China

Click to play video: 'Trump admits ‘second thoughts’ on trade war with China'
Trump admits ‘second thoughts’ on trade war with China

Americans have already turned more pessimistic. The University of Michigan’s consumer sentiment index, released Friday, fell by the most since December 2012.

“The data indicate that the erosion of consumer confidence due to tariff policies is now well underway,” said Richard Curtin, who oversees the index.

Some retailers may eat the cost of the tariffs. Target confirmed to The Associated Press that it warned suppliers that it won’t accept cost increases arising from the China tariffs. But many smaller retailers won’t have the bargaining power to make such demands and will pass the costs to customers.

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