ARI SHAPIRO, HOST:
The Dow plunged 1.8% today. The trade standoff with China is making lots of people nervous.
AILSA CHANG, HOST:
Now, Chinese officials are still planning to come to Washington on Thursday. But what was supposed to be run-of-the-mill trade talks now have higher stakes. The Trump administration says higher tariffs on Chinese products will go into effect this Friday. That cements a threat that President Trump first made in some tweets over the weekend.
SHAPIRO: Yesterday we spoke with Stephanie Nadeau. Her lobster shipping company has lost half its business because of these tariffs.
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STEPHANIE NADEAU: Everybody was getting a little hopeful that we might have some resolution in the next couple of months. And we had the tweets this weekend which pretty much put the kibosh on that. So you sink back into despair.
SHAPIRO: This trade war began more than a year ago. To understand the impact it has had on the prices of things we buy, we are joined now by Soumaya Keynes of The Economist. Welcome.
SOUMAYA KEYNES: Thanks for having me.
SHAPIRO: Have these tariffs generally led manufacturers to raise prices on things people buy?
KEYNES: It's difficult to see, if you look at overall prices, much of an impact of these tariffs. Most of the tariffs so far are on things like car parts, for example. They're not on things that consumers buy at the shop, right? So it's not bedsheets or clothes or gloves or that sort of thing.
SHAPIRO: But I've heard a lot of stories saying that luggage sales are down. Auto parts will cost more. Car repairs are becoming more of an issue. When those businesses are complaining about the financial impact of the tariffs on them, how does that not get passed on to a consumer?
KEYNES: If you think about these tariffs in the bigger picture of the U.S. economy, they're not going to break the economy essentially. But if you think about the localized impacts of these tariffs on the individual businesses facing them and that person who really needs to fix their car at this minute, then yes, those tariffs are going to feel material.
So far, it looks like manufacturers are sucking up a fairly big fraction of extra costs because of the tariffs. But the concern is if President Trump follows through with his threat, if he raises the tariffs from 10% to 25%, you might start to see bigger price increases for consumers.
SHAPIRO: OK, so dig into that possibility for us. What happens if on Friday we do go from 10 to 25%? Do you expect consumer prices to jump?
KEYNES: That tariff increase would affect products that had been sent from China to America where the importers were not expecting that tariff to go up. Those decisions were made on the understanding that the tariff would stay in place at 10%. And maybe it could even fall. So the question is, can those importers cope with sucking up another 15 percentage points of those tariffs into their profit margins? Now, the U.S. economy is doing pretty well right now, but I'm skeptical that consumers aren't going to face any of the hit.
SHAPIRO: Do you see a breaking point where the pain for consumers becomes so great that the Trump administration has to re-evaluate its calculus in these trade talks?
KEYNES: I don't know. If you look at how important Chinese imports are for American consumers, they matter, but they're not a sort of make or break. And so this is the kind of thing that could be annoying, but I'm just not sure we're going to see, you know, protests on the streets.
SHAPIRO: You know, I'm curious. You're covering this story for The Economist, which is a British publication. What does this look like to your readers in Europe?
KEYNES: You know, it's a British publication, and Britain isn't exactly covering itself in glory at the moment in terms of economic acts of self-harm. But I'd say this falls into that category, right?
SHAPIRO: (Laughter) Just in case it was unclear, you're referring to Brexit there.
KEYNES: I was referring to Brexit. So in terms of, you know, needlessly economically damaging actions, Britain isn't setting a great example. But this trade war definitely seems to fall into the category of fairly damaging.
SHAPIRO: Soumaya Keynes is the U.S. economics editor for The Economist. Thanks so much for talking with us.
KEYNES: Thanks for having me. Transcript provided by NPR, Copyright NPR.