Trade and Your Wallet
During the last few years, international trade took center stage. Today, it is even more important to analysts, media pundits, investors, and other economic players. Above all else, issues related to the China tariffs list, the potential USMCA trade agreement, and Brexit have a direct impact on household budgets.
To clarify, volatile trade relations translate to unstable food, energy, and consumer good prices. These random changes may shock many people, depending on their consumption preferences and habits. For example, if you buy any items on the China tariffs list, their prices are likely to have dramatically increased during the last 18 to 24 months.
Consumers can’t influence trade talks. However, they may adjust their budgets and purchasing habits accordingly. As an instance, a family that buys Canadian beef would have to pay more for the product if import tariffs increase. Because of this, they may switch to a local organic supplier to save money.
On the other hand, when countries settle on an international commerce framework, such as the USMCA trade agreement, the same household’s expenses will go down. In addition, they may find a variety of beef products the next time they go shopping.
Perhaps most importantly, the US is negotiating several deals at the same time. In other words, the prices of consumer goods will likely change in the coming months. This article outlines how agreements with different countries impact the costs of products and services in the US.
Trade, Consumption, and Your Expenses
The global markets dramatically changed in recent years. First, the Trump Administration is penalizing imported products on the China tariffs list. Moreover, Washington D.C. and Beijing are negotiating a new deal that overhauls the existing one.
Second, the USMCA trade agreement between the U.S, Canada, and Mexico will replace the North Atlantic Free Trade Agreement (NAFTA). All it needs is Congress’s approval.
Third, the UK’s departure from the EU (a.k.a Brexit) allows Britain to negotiate individual deals with other countries, including the US. Lastly, American leaders are reshaping the relationship with EU, in its own respect.
Some people may have noticed some changes, already. For example, President Donald Trump’s China tariffs list increased the prices of TV sets, shoes, and food products. In fact, JP Morgan predicted that US households will spend an extra $1,000 per year when they purchases these goods.
At the end of the day, however, the US trades different types of products with each country. Equally as important, the relationship with these nations impacts prices in several ways. Progress makes prices cheaper, while tensions are likely to cause inflation.
The US and Britain
In January of 2020, the UK is set to leave the European Union. Consequently, the British government can reach bilateral (one-on-one) trade deals with different nations. As an EU member, meanwhile, the UK needed the consent of all other 27 states in the bloc (such as Germany, France, and Italy) before implementing international commerce agreements.
Once the UK leaves, they expect to sign a comprehensive trade pact with the US. As far as consumers are concerned, America mostly imports agricultural products from Britain. Therefore, households will be able to buy British meat, dairy, and vegetables at a cheaper price.
Having said that, these products may still be more expensive than Chinese, American, or Canadian goods, even more so when we consider shipping expenses.
A trade deal with Britain is also likely to include the banking sector. US consumers might have access to more financial firms, which further increases the competition (and quality) of these services.
One of the main concerns about the US-UK agreement is about how long it would take. After all, Britain was supposed to leave the UK in March, but they delayed their EU departure date three times already.
This time, though, it is very different. As Britons head to the polls next week, the Conservative Party is expected to win the election and form a majority government. Because of this, Parliament is most likely going to approve the deal that Prime Minister Boris Johnson negotiated with the EU.
Previously, no party held the majority of the seats in the British Parliament. In turn, political and fractional disagreements made it near impossible to unite the House of Commons. A Conservative majority, meanwhile, will have the number of votes that they need to approve a Brexit deal with the EU.
U.S and EU Relations
While the Trump Administration is trying to negotiate an agreement with Britain, their attitude towards mainland Europe is less friendly. The US mostly imports luxury goods, such as wine and automobiles, from the EU.
Recently, though, the White House slapped tariffs on these products. Yet, because they are upper-scale items and not necessities, the prices of wine and cheese will not witness a big change. In addition, most Americans buy alcohol and dairy that is either locally made or imported from Canada and Mexico.
If you own a European car, however, your wallet may take hit from these tariffs. The cost of buying replacement auto-parts or changing the oil of a Europe-made vehicle is already expensive, to begin with. Import duties are only going to make things worse.
The China Tariffs List
The US and China have the two largest economies in the world. Additionally, each of them trades with the other more than they do with any other country. Needless to say, the relationship between them has a large impact on household items.
Initially, the China tariffs list included dishwashers, ovens, batteries, juice-making equipment, and vaccines (for both humans and pets). More recently, the levies expanded during the summer. Other Chinese-made items, like clothing, sports wear, diapers, and TVs, also became subject to the import tariffs.
For many people, this had an effect on the cost of everything from buying orange juice to owning a dog.
At the moment, many people expect the two countries to reach an agreement by December 15. If that is the case, the fees on certain imports might gradually go down. Similarly, so does your shopping bill when you buy these products.
Otherwise, if no deal is made, the US will add other, previously-untouched items to the China tariffs list. Consumers use most of them in their household and daily lives, which makes this policy especially important. This further increases the cost of goods and services.
An alternative (and most likely) scenario is that the US will cancel the tariff hike, but without striking a deal with the Chinese. Nothing will change in the immediate future if this happens.
Regardless of the outcome, though, consumer prices are going to increase or decrease at some point. All of this depends on how trade talks with China develop.
The USMCA Trade Agreement
During the summer, the US, Mexico, and Canada negotiated a new arrangement, which would replace NAFTA. Under the USMCA trade agreement, American and Canadian farmers can sell their products more freely between the two countries (and Mexico).
In other words, milk, cheese, butter, and dairy is likely going to be cheaper, especially in states or areas that are near the northern border.
Just as importantly, the USMCA trade agreement influences how much your next car is going to cost. First, the framework aims at incentivizing companies to make their cars in North America. Second, it establishes a minimum wage for the auto industry, applicable to any worker in Mexico, Canada, and the US.
When carmakers have to pay their employees more, they may increase vehicle prices to offset this additional expense. However, because North American-made cars and trucks can be sold across the three countries without incurring any tariffs, this gives us a reason to expect lower costs.
Nonetheless, we may have to wait to find out what the USMCA means for auto prices. At the moment, the agreement only needs Congress to approve it.
What the Future Holds
The US exchanges different products and services with the UK, Europe, China, Canada, and Mexico. While America’s relationship with each country is unique, consumers across the nation feel the effect of trade policies.
Buyers of high-end meats and dairies will appreciate a deal with the UK and the USMCA trade agreement, but not the recent tariffs on French imports.
However, if you are thinking about purchasing a car, then it is best to keep an eye on vehicle prices after the deal with Canada is implemented. Meanwhile, all households are going to be impacted by the relationship with China.
The next time you go to the store, try to look at the ‘Made in XYZ Country’ label. Do you notice a pattern or theme? Are there alternatives, such as locally made products, that you could resort to at a desirable price?
It is a good idea to monitor trade relations. Everyone hates to miss a great savings opportunity. Budgeting headaches are also undesirable, even more so when factors that are out of our control cause it. In fact, without staying on-guard, your expenses might go up without you even noticing.