MW Trump to ratchet up China tariffs again. Here's why consumers will feel the pain this time.

By Chris Matthews

New York Fed analysis suggests 'missing imports' from China could mean higher costs ahead

The Trump administration's latest salvo in its trade war with China could finally hit American consumers where it hurts most - their wallets.

President Trump said Thursday that a new 10% tariff on all Chinese imports will take effect March 4, just weeks after his administration's previous 10-percentage-point tax hike on imports from the world's second-largest economy.

Trump took to Truth Social $(DJT)$ on Thursday to argue that China has not done enough to stem the flow of illegal drugs, specifically fentanyl, into the the U.S. and that the new tariffs will be a punishment for not taking more forceful action.

"We cannot allow this scourge to continue to harm the USA," Trump said. In addition to the China tariffs, he said new 25% tariffs on imports from Canada and Mexico would also be imposed on March 4, as previously announced.

Tariffs are taxes paid by U.S. importers at the port of entry, and economic studies show that the vast majority of the cost of tariffs are paid by end consumers of products, rather than producers or middle men.

While many Americans have been largely insulated from previous rounds of tariffs through various workarounds and exceptions, the scope of Trump's trade war with China is just now coming into focus, and experts say the impact of these policies will be felt much more deeply by consumers this time.

The combination of new tariffs and other planned restrictions on Chinese investments in the U.S. will lead to China retaliating, and "an unrelenting progression of conflict and escalation now seems unavoidable," Stephen Roach, a former Morgan Stanley chief economist, wrote in a Thursday newsletter.

"Donald Trump has invested a huge amount of political capital in his anti-China stance, reinforced by the unwavering support of his MAGA base and a hawkish team of China advisors," Roach added. "And now, he is delivering as promised - with twin proposals on America First Trade and Investment that are tightly aligned with his core anti-China views."

Roach noted that Trump's tough trade stance with Canada and Mexico is in some ways complimentary to his China policy, because the Trump administration wants Mexico to fear consequences if it is used as a base for Chinese businesses to avoid U.S. tariffs.

The Trump administration is also cracking down on exceptions to tariffs for packages sent to the U.S. with goods valued at less than $800, and this provision could lead U.S. consumers to notice significant price increases, according to Hunter Clark, economic policy advisor in the New York Fed's Research and Statistics Group.

What started as a convenience for small purchases has morphed into a major trade channel, with direct-to-consumer shipments from China to American doorsteps surging since the trade war began under the first Trump administration in 2018.

"There appears to be upwards of $100 billion in 'missing imports' in U.S. data," Clark noted in his analysis. "Quite possibly at least $50 billion may be accounted for by this de minimis trade."

This off-the-books commerce has exploded since 2016, when the threshold was raised from $200 to $800 - creating a perfect storm when combined with high tariffs and the rise of e-commerce platforms connecting Chinese sellers directly with American buyers.

The numbers are staggering: While official U.S. statistics show imports from China falling from 21.6% of total imports in 2018 to just 13.4% today, China's own data tells a different story - showing barely a 2.5% decline in its share of the American market.

"The data presented illustrates how large increases in tariffs against China have contributed to distortions in trade statistics caused, in part, by private-sector efforts to avoid payments on customs duties," Clark said.

This explains why, despite years of escalating tariffs, many shoppers haven't yet felt major price hikes on Chinese-made goods. The combination of trade diversion, company margin compression and these direct-to-consumer shipments has blunted much of the impact.

But the administration appears determined to close these loopholes, potentially bringing the true economic cost of the trade war home to American consumers for the first time.

"If the de minimis exception is ended for China and Chinese sellers do not slash their profit margins by reducing their export prices," Clark warns, "U.S. consumers could face larger consequences than meet the eye."

The move comes amid an aggressive push by the administration to reduce America's dependence on Chinese manufacturing, though economists have debated whether these policies will ultimately result in the reshoring of production or simply a shift in supply chains to other countries like Vietnam, Mexico, and Taiwan.

What's clear is that the long-running U.S.-China trade dispute shows no signs of cooling. And with these new tariffs set to kick in on March 4, American consumers might finally understand what all the fuss has been about - when they check their shopping carts and see the higher prices.

-Chris Matthews

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February 27, 2025 13:24 ET (18:24 GMT)

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