For the time being, optimism on Main Street remains high: The National Federation of Independent Business said its business optimism metric is at its second-highest point ever, and a higher-than-expected gain in retail sales for May indicates that confidence and the willingness to spend is high among consumers, as well.
National Retail Federation president and CEO Matthew Shay warned on Friday that tariffs could dump cold water on this momentum. “Tariffs are taxes on American consumers, plain and simple,” he said in a statement. “They will strain the budgets of working families by raising consumer prices.”
A study jointly commissioned by the National Retail Federation and Consumer Technology Association said that tariffs on $50 billion worth of Chinese imports plus in-kind retaliation would shrink GDP by $3 billion over the next one to two years and cost 134,000 jobs. “More than four jobs would be lost for every one gained, with the gains in metals and machinery coming at the expense of agriculture, transportation equipment and services,” the report predicted.
According to Robert S. Ross, a professor of political science at Boston College, “China has lots of leverage over the United States in a lot of different ways,” like a large domestic market that could mitigate a drop in demand from the U.S., and a state-run press that could vilify big American brands like Apple and Starbucks.
“There are ways that China can retaliate that don’t necessarily hurt the Chinese economy,” he said, contrasting the administration’s approach to China tariffs with the more aggressive stance Trump has taken with other trading partners. “It’s clear that we are moving far more cautiously on China than we are on Canada, Mexico and Europe because we understand China’s retaliatory abilities are greater,” he said.
Ross warned that there could be diplomatic as well as commercial repercussions, with the acrimony threatening to disrupt the fragile diplomatic relations with North Korea. The threat of a trade war, “would reduce China’s interest in cooperating with the United States on North Korea,” he said.
Joseph LaVorgna, chief economist for the Americas at Natixis, a French investment bank, suggested that this bluster could still just be all part of the negotiation process, pointing out that the U.S.T.R. said Customs and Border Protection agents won’t begin actually collecting the tariffs until July 6.
“It’s the politics that are important here and when you look at the size of the tariffs it’s really quite tiny,” he said. “I just think this is negotiation at a high level.”
Whether or not this realization will ultimately result in cooler heads’ prevailing remains to be seen, though, and not everyone is optimistic.
“There’s still time to come back from the brink, but I would be hesitant,” Kirkegaard said, to dismiss the prospect of a looming trade war.