New US tariffs of 10 to 12.5 per cent hit 60 trading partners today, including Britain. Here is how a trade measure reaches your household budget.
I bought a coat once that took eleven weeks to arrive.
It came from a small maker abroad, and somewhere between the order and the doorstep it met a customs process that nobody had thought to mention at checkout. When it finally turned up, there was a charge to pay before I could have it. Not a large one. But it had not been in the price I agreed to, and I remember standing in the hallway doing sums on the back of the delivery note, wearing the expression of someone who has just been taught something for money.
That charge was a tariff. It is the only one in my life that has ever arrived with my name on the envelope. Every other tariff I have paid, and there have been a great many, arrived quietly, folded into a price, wearing a disguise.
What Happened
Just after midnight in Washington this morning, new United States tariffs came into effect covering 60 trading partners at rates between 10 and 12.5 per cent. According to the Office of the US Trade Representative, the affected countries account for around 99.4 per cent of American imports, which is very nearly a rounding error away from all of them. Britain is on the list, at the lower rate.
These measures replace a temporary blanket 10 per cent duty that expired at the very same moment, in a piece of choreography that would be admired in ballet. They are being applied under a different section of trade law, Section 301 of the Trade Act of 1974, on the grounds of ‘enforcement of forced labour’ import bans.
I am going to leave the politics of that entirely alone. There are serious arguments on several sides, and they are not mine to referee. What I can usefully do is explain the plumbing behind it, because the plumbing is where your money actually lives.
Who Actually Pays a Tariff
This is the most misunderstood thing in the entire subject, and it is misunderstood in one particular direction, so let me be blunt.
Tariffs are paid by the importer, not by the exporting country. Not by the foreign company. When a British firm sells goods into the United States, it is the American business bringing them in that hands over the duty at the border, in the way you might hand over a parking fine.
What happens next is the interesting part, because that importer now has precisely three options. It can absorb the cost and accept a thinner margin, which nobody enjoys. It can pass the cost on through a higher price, which nobody admits to. Or it can go looking for a supplier in a country facing a friendlier number, which is the option that quietly reshapes entire industries while everyone is arguing about the first two.
In practice, most firms do a bit of all three, and the split depends almost entirely on competition. In a crowded market, more of the cost gets swallowed. In a market with few alternatives, it walks straight onto the shelf and introduces itself to you.
How It Reaches a British Kitchen
You might reasonably wonder why any of this concerns you, sitting in Britain, when the money is being collected at a port in New Jersey.
Three ways, roughly.
The first is demand. British exporters selling into the United States now face customers whose costs have gone up. If that thins the order book, it thins revenue, and eventually it reaches employment and investment at the businesses concerned. Some of those businesses are sitting in your pension right now, doing so without ever having introduced themselves.
The second is currency, and this is the one I would watch. Trade measures move exchange rates, and exchange rates move the price of everything Britain imports, which is an enormous amount of what you buy. A weaker pound makes your holiday, your olive oil and your next phone more expensive without a single penny of tariff ever being levied on you. It is the most effective price rise in existence, because nobody sends you a letter about it.
The third is redirection. Goods that become harder to sell into one market go looking for another, in the manner of a guest who has been politely turned away from one party and can hear music down the road. That can mean more supply and softer prices in Europe for certain categories, which is genuinely good news for shoppers and genuinely unwelcome news for the domestic producers now competing with it.
What I Am Actually Doing
Nothing dramatic, which is almost always the correct response to a headline.
I am not rebuilding a portfolio around a measure that has existed for a matter of hours, in a policy area that has recently been announced, paused, struck down in court, and resurrected under a different statute. Trading on day one of a policy is how people pay handsomely for the privilege of being early and wrong.
What I am doing is watching the currency, because that is the channel most likely to reach an ordinary British budget and it is the one people notice last, usually at a checkout, usually while blaming the shop. And I am quietly noting which of the things I buy regularly have travelled a long way to reach me, because those prices tend to drift upward over months rather than jump overnight, which makes them very easy to miss and very easy to spot if you had the decency to look beforehand.
The coat, I should say, was worth every penny. I have simply never since believed a price at checkout was the price.
For how global trade tension reaches everyday costs, read The War You’re Not Fighting
CNBC has reported the detail of the new duties, and CNN has covered which trading partners are affected.
The Jacqueline Brand, knowledge builds confidence, confidence builds wealth. This is editorial commentary for inspiration, not financial or professional advice. Always do your own research. The Collection
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