MNI POLICY: SF Fed: China Tariffs Could Add 0.3PP to PCE Infl

By Jean Yung

     WASHINGTON (MNI) - The Trump administration's 10% tariff on Chinese imports

has so far contributed 0.1 percentage point to consumer price inflation and 0.4

percentage point to price inflation for business investment goods, according to

new research Monday from the Federal Reserve Bank of San Francisco. 

     A 25% tariff on all Chinese imports, if implemented, would raise consumer

prices an additional 0.3 percentage point and investment prices an additional

1.0 percentage point, the paper found. President Trump on Sunday extended his

original Friday deadline to increase tariffs on $200 billion of Chinese goods as

negotiations continued, but no new deadline has been set. 

     San Francisco Fed economists Galina Hale, Bart Hobijn, Fernanda Nechio and

Doris Wilson found the contribution of Chinese imports to overall personal

consumption and business investment to be small, at 1.7% and 5.4%, respectively.

     "However, when faced with tariffs as high as 25% on a broad set of product

categories, even these small shares can lead to sizable upward pressures on

prices," they wrote. 

     Tariffs are already in place on 34% of Chinese imports contributing to

consumption and 42% of Chinese imports contributing to business investments,

according to the research. About $250 billion dollars of Chinese goods are

subject to import tariffs of 10% or higher as U.S. officials continue to press

Beijing for significant revisions to its trade practices. 

     The Fed analysis focuses only on short-term direct effects and does not

account for adjustments to the supply, markups, or the responses of importers,

domestic producers, and consumers, the authors said, adding the net indirect

effects of tariffs on domestic prices over the longer run "is less clear." 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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