LEILA FADEL, HOST:
For more about what's next on tariffs, we've got Mary Lovely on the line with us. She's a senior fellow at the Peterson Institute for International Economics, and her expertise is tariff policy as it relates to the U.S. and China. Good morning, Mary. Thank you for being on the program.
MARY LOVELY: Good morning, Leila.
FADEL: So we see these incredibly steep tariffs on Chinese goods, expectations that China will retaliate as intensely, both countries talking tough, with no one backing down. Where does this go?
LOVELY: Well, it looks like we're headed to a stalemate. The Trump administration has been talking very tough on tariffs and especially on China. And while we know the Chinese have been in Washington looking for ways to begin negotiations, none right now are forthcoming.
FADEL: Now, if you could just put these tariffs into context for us, how do they compare to the ones President Trump issued in his first administration and President Biden kept in place?
LOVELY: Yeah. There are very big differences between now and what happened in 2018, 2019. Many look at those and say, well, that wasn't so bad. But this time is different. First of all, the tariffs are on all products. There's no carve-outs that would cushion the blow for American companies or American consumers - big one being Apple. Secondly, they're on not just China but on all countries. So the first time we had a trade war with China, companies were able to go around China, perhaps moving to subcontractors in Mexico or Vietnam. Now we're seeing tariff rates on some countries as high as almost 50%. And lastly, just the height of these rates are really very high, and U.S. importers are going to have trouble dealing with them and passing them forward or even absorbing them into their profit.
FADEL: Well, let's talk about that because I think a lot of people are just concerned about what it means for their pocketbook, how much they will be able to afford. I mean, how much can companies actually absorb until they pass those costs on to consumers?
LOVELY: Well, it really depends on the company and how much market power it has. The first time we had a trade war with China, we saw that 100% of those - that tariff burden was borne by the American importer, whether that was a firm or a consumer. About 25% overall of it went actually into the - you know, you saw at the cash register.
This time, we expect it to be different. The rates are so high. Especially small and medium businesses are having trouble already. Lots of reports of suppliers, particularly in the auto part sector, having trouble posting bonds because the companies have to post bonds ahead of time for the amount of tariff that they might be on the hook for once those imports actually clear the port. So they're having trouble - some companies announcing they may help their subcontractors. All in all, we're expecting to see some business failures. There are many small businesses that import things that they used to produce here and simply saying they cannot bear this burden.
FADEL: Where do you think the biggest increase in prices will be seen?
LOVELY: Well, I think you'll see it most clearly in consumer goods. These were largely spared, not entirely spared, in the first trade war, but we're going to see it quickly in electronics, in home goods, in clothing and apparel - lots of things that people buy very often. Companies, of course, will see it in all kinds of inputs and commodities that they buy from abroad. There will be some carve-outs. Some of the types of things like semiconductors that the administration has spared are - actually have their own tariffs. We're going to see or we expect to see more tariffs coming from the Trump administration, like we've already seen on the automobile sector.
FADEL: Now, what do you think about the negotiations? Do you think this will likely change things?
LOVELY: I think smaller countries for whom trade is very important, particularly those who trade with the U.S. is very important, such as Vietnam, will certainly be eager to cut a deal. China - a whole different story. We've already heard from the reporters that that's unlikely to happen.
FADEL: Mary Lovely is a senior fellow at the Peterson Institute for International Economics. Her expertise is tariff policy as it relates to the U.S. and China. Thank you, Mary, for your time and your insights.
LOVELY: You're welcome. Transcript provided by NPR, Copyright NPR.
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