Businesses are worried about higher tariffs, like taxes, under Trump presidency
Higher tariffs could cost a typical middle-class household more than $2,600 a year in higher prices.
If Donald Trump wins the election, Fyxation Bicycles of Milwaukee could face a 60% tariff on the bikes it imports from China, a rate increase that would likely hurt sales.
Under President Joe Biden the company already pays up to a 36% tariff, an import fee similar to a tax, on certain bicycle products from China. Trump has proposed raising the rate to 60% on all Chinese-made goods, and up to 20% on goods imported from other countries.
Even a 20% tariff increase could cost a typical middle-class household more than $2,600 in higher prices, according to the Peterson Institute for International Economics.
Companies like Fyxation feel the pain when people reduce spending on non-essential purchases. A "get tough on China" tax might be in the interest of politicians, but it’s really just a tax on consumers, said Fyxation Bicycles co-owner Nick Ginster.
Proponents of tariffs argue the fees help keep the U.S. from being flooded with cheaply produced foreign goods including products subsidized by the Chinese government. With specific goals in mind, there’s evidence that tariffs can help American companies regain their footing against overseas competitors.
Stoughton Trailers won trade dumping case against China
For example, in 2021 a coalition of U.S. trailer manufacturers, including Stoughton Trailers from Stoughton, prevailed in their complaint that Chinese companies were selling trailer chassis in the United States for below the actual cost of making them, a trade violation known as dumping.
As a result, tariffs of more than 200% were levied on those trailers used to haul ocean-cargo containers on American highways. Sales went back to the U.S. manufacturers, supporting thousands of jobs in Wisconsin, Michigan, Pennsylvania, New Jersey, Alabama and Texas.
But critics said a side effect of more expensive trailers was the tariffs increased transportation costs for a wide range of goods used in our everyday lives – increases eventually paid by consumers.
Similar arguments were made about tariffs on foreign-made household appliances.
Tariffs on foreign-made washing machines, imposed in 2018 and which expired in early 2023, boosted U.S. appliance making as GE and Korean manufacturers Samsung and LG opened or expanded plants in Kentucky, South Carolina and Tennessee.
However, "there is pretty solid evidence that the 2018 tariffs on washing machines pushed up the price of washers by 12%. And even though dryers weren’t included in the tariffs, those prices also rose,” said Brian Jacobsen, chief economist for Annex Wealth, in Brookfield.
Both Republicans and Democrats have supported tariffs
At varying degrees, tariffs have been popular with both Republicans and Democrats, partly because the money collected goes to the U.S. Treasury, but also because elected officials are eager to please constituents worried about China and the loss of U.S. manufacturing.
“If consumers have to pay $100 more for a washer they buy only every decade, but there is a town that can see a plant come back to create jobs, the consumers aren’t going to lobby too much against the policy while the handful of people who might get jobs will be very vigorous in their support. That calculus drives a lot of policymaking,” Jacobsen said.
Proponents of tariffs argue they’re effective in trade negotiations. But countries retaliate with actions against U.S.-made products like Harley-Davidson motorcycles, Kentucky Bourbon, and agricultural goods. Threatening steep tariffs is "a bit like threatening to drive your own car off a cliff,” said Joshua Zive, an international finance lawyer in Washington, D.C.
Trump established nearly $80 billion worth of tariffs on thousands of products in 2018 and 2019, which was effectively one of the largest tax increases in decades, according to the nonpartisan Tax Foundation, in Washington, D.C.
Biden kept most of the Trump tariffs and added some of his own.
Future tariffs depend on the outcome of presidential election
Now, depending on whether Trump or Vice President Kamala Harris wins the election, the U.S. could see a continuation of Biden’s policies, some changes, or drastic increases in tariff rates.
"I think a lot of people understand that Trump needs to sound very serious about imposing tariffs so that his threat is credible. If countries don't think he'll follow through on the threat, then they have no reason to believe the threat," Jacobsen said.
Harris would probably set a trade policy more akin to the Barack Obama and George W. Bush administrations, with less use of broad-sweeping tariffs, according to Zive.
“I think a return to normalcy would be welcomed,” he said, because most businesses don’t like large and sudden changes triggered by trade wars.
To avoid steep tariffs, many manufacturers have moved production from China to other Asian countries like Vietnam. They’ve also moved work to Mexico, where labor costs are lower than in China, and to the U.S., where higher costs are offset by advantages such as proximity to the marketplace.
Yet there’s a cost to moving work around the world, and the wrong decisions can be disastrous.
Some of Fyxation’s competitors ran into trouble attempting to relocate manufacturing from China. They quickly realized that setting up shop in another country wasn’t what they expected.
“They screwed up and now they’re out of business,” Ginster said.
Large bicycle companies, like Wisconsin-based Trek, have manufacturing in China but also make bikes in Taiwan, Vietnam, Germany, the Netherlands and the United States. To some extent, they have the financial wherewithal to move production when U.S. trade policies change.
The effect of tariffs on American bicycle brands is unequal, says People for Bikes, a trade association that represents manufacturers and consumers.
Some companies are disadvantaged based solely on trade policy and not the quality of their products, according to People for Bikes.
Consumer backlash against tariffs
This fall, the U.S. announced tariff increases on imports from China for items such as medical gloves, lithium-ion batteries, steel and aluminum products, and semiconductors. Some of the new rates went into effect in late September while others are set for January 2025 or 2026.
American consumers could lose billions of dollars in spending power if tariffs are raised on common household products like microwaves and clothing from China, according to the National Retail Federation.
Low-income households are especially affected, said Jonathan Gold, the federation's vice president of supply chain and customs policy.
Small U.S. companies are also vulnerable to higher tariffs if they import products or supplies from China.
"Unfortunately, many small and medium-sized companies don't have the ability to take on those price increases, so they have to pass them along to consumers," Gold said.