The major stock indices soared Thursday on word that the U.S. and China would hold high-level trade talks next month. Despite investors’ optimism, the Trump administration’s trade war with China has already hit Minnesota retailers and consumers.
A new round of tariffs took effect this week, and the prospect of further hikes has some Minnesota retailers on edge.
As of Sunday, a 15 percent charge began applying to $110 billion of mostly consumer goods imported from China. Trump has also announced that existing tariffs on another group of $250 billion of goods will go up to 30 percent next month.
Many consumer products contain components or originate from abroad — often China.
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This far into the trade war with China, retailers' only remaining option is to raise prices, said Bruce Nustad, president of the Minnesota Retailers Association.
"Retailers have worked hard over the past few months amid other tariffs to try to absorb those price increases that are a result from tariffs,” he said. “It’s getting to the point where things are stretched fairly thin and it’ll be more difficult to absorb those tariffs.”
Nustad says whether they sell appliances, shoes or clothes, retailers — big and small — are feeling the effects. Tariffs on electronics are set to begin in December.
But as the holiday season approaches, some retailers have already put their orders in, as they've done in previous years. Nustad says the tariffs will now apply to those orders that include shoes, clothing and kitchenware, which will make for a more expensive holiday shopping season.
"The retailers that I've talked to want to see trade imbalances fixed, some of our trade agreements addressed,” he said. “This particular tactic is actually a tax on American consumers as opposed to a tax on a foreign operation that might be selling products to America."
And even though trade talks are resuming, there’s no guarantee where President Trump's upcoming negotiations with China will lead.
That uncertainty hobbles American companies' ability to make plans and strategic investments, said Timothy Kehoe, a University of Minnesota economist.
China’s retaliation against U.S. agricultural products also is likely costing American farmers important markets, he said.
"There is a lot of other producers waiting, particularly in countries like Brazil and Argentina who can take the place that the Minnesota farmers had,” Kehoe said. “Once they pay the cost of shifting to our competitors, they're not going to be in a rush to come back to buying from Minnesota."
Kehoe added that there is a reason trade wars like these haven't taken place since the Great Depression of the 1930s. It's good study material for him as a professor, but not for his finances as a citizen.