There’s a lot of discussion currently about how much impact new US tariffs on a variety of imports will have on the overall economy. For instance, many businesses in the ISM Manufacturing survey cited tariffs as a negative or cause for concern (link). The FOMC also noted “many District contacts expressed concern about the possible adverse effects of tariffs and other proposed trade restrictions” in its most recent meeting minutes. While overall tariff barriers are still very low versus much of history, the imposition of these new taxes (tariffs are a tax on a specific product) is already having effects.
At the end of January, the administration raised tariffs on both solar cells and washing machines sold to consumers (link). As a result, businesses ramped up imports ahead of the tariff’s introduction. Since 2008, no month had seen more than $185.4mm in washing machine imports. The average month was more like $129mm. In November, however, that number spiked to $223mm with over $310mm imported in December. The introduction of the tariffs in January led to a slower $188.4mm in imports before bottoming out at an anemic $66.1mm in March. We show these numbers (note: we’ve adjusted for seasonality) below.
The key takeaway from this data is that taxes change behavior. In some cases, changes in behavior can be small. In others, they can be large and temporary. Washing machines are a good example. From January to September of 2017, washing machine imports averaged $142.4mm/month. Since, they’ve averaged $155.6mm…but they’ve been extremely lumpy as businesses sought to avoid the tax. That sort of shift in the data is a good example of the effects on data that policy changes can have.
Of course, there are other impacts as well. After seeing 5 years of consistently declining prices, the CPI index for washing machines has surged 17.7% in the last two months as tariffs are passed on to consumers. As new tariffs continue to take effect, remember that they’re a tax hike, and that they can have complicated impacts on economic data which are sometimes hard to predict.