The economic state of retail could become more complicated. Amid inflation, high interest rates, and lower consumer spending and savings, there is now concern over how US consumers will fare should the government terminate its ‘permanent normal trade relations’ (PNTR) trade status with China. Currently, Congress has enacted no official proposals or plans pertaining to this issue. However, there is cause for concern since the US has been in a trade war with China since 2018. And with the 2024 presidential election just under a year away, this concern will only grow. As a way to address concerns, the National Retail Federation (NRF), released a report detailing the economic and financial impacts of revoking China’s PNTR trade status on October 12.
PNTR is a legal designation granting free trade with a foreign nation. China was granted PNTR trade status in 2000, one year before the nation officially entered the World Trade Organization (WTO). The benefits of PNTR trade status include granting permanent “favorable market access to China,” such as cutting and eliminating duties on Chinese imports, according to The Washington Post. The thought behind ending China’s PNTR status is to prop up US manufacturing and encourage trade with other countries. Should this trade status be eliminated, tariffs on all imports from China, including “finished goods and inputs to production,” will increase substantially and affect consumers’ purchasing power.
The Consequences for Consumers in the NRF Report
The NRF report, “Estimated Impacts of Changes to China’s Tariff Status: Toys, Furniture, Apparel, Household Appliances and Footwear,” examines five consumer product categories that will be impacted if China’s PNTR trade status is revoked and then classified instead under Column Two countries with higher tariffs.
Overall, the report found that “proposed tariffs on these five products alone would reduce consumers’ spending power by nearly $31 billion, or $240 per household.” The product category with the highest estimated percent increase would be toys, experiencing a 21.4 percent price increase, $12.2 billion lost annually in consumer spending.
Household appliances are estimated to be the second hardest hit by China’s PNTR revokement. According to the report, China accounted for “nearly half of U.S. imports of household appliances” in 2022. The current Column 1 tariffs on household appliances measure out to 2.1 percent. But if these tariffs moved into Column 2 territory, they would increase to 38 percent, which is a staggering 18-fold increase.
The report continues by sharing the fact that household appliance imports from China could increase in cost by 30 percent, and the cost of household appliances in the US generally could rise by 7 percent. The change in trade status will amount to a total $4 billion loss in revenue for the US economy.
As we have seen in the United States, with high interest rates being used to dampen the effects of inflation, high tariffs will undoubtedly lead to a decline in consumer spending. Should China be moved to a Column 2 trade status, tariffs on household appliances will lead to a 13 percent decline in consumer purchases of these products. This is because “higher costs from tariffs impose on consumers an additional cost of $5.2 billion more for household appliances.” Low-income consumers will be disproportionately affected by these high tariffs, especially considering “they spend five times as much of their income on household appliances as wealthier households,” according to the report.
Outsourcing manufacturing and production to other countries, or even building up the manufacturing sector in the US, could prove costly. Considering China has had a major foothold in US imports for a little over two decades, a sudden location change may lead to supply chain shortages and disruptions. Furthermore, relocating entire manufacturing facilities is not feasible.
“Even though significant efforts have been made in recent years to diversify sourcing, China continues to play an important role in the supply chain of many retailers and other global industries, from sourcing raw materials to manufacturing and production,” NRF Vice President of Supply Chain and Customs Policy Jonathan Gold said in a press release. “It would be impossible for American families to escape the higher costs from dramatic tariff increases on necessities such as apparel, footwear, furniture, appliances and toys.”