KPBS anchor Ebone Monet and SDSU marketing lecturer Miro Copic discuss some of the week’s top business stories.
Q: President Trump has announced another round of tariffs on Chinese goods. This time the president tweeted there will be a 10% tariff on the remaining $300 billion worth of goods coming into the U.S. Miro, what will this mean for consumers?
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A: This is certainly a little bit unprecedented. We're talking about this $300 billion, over 60% of it is consumer goods. So up to now it's been mostly industrial goods. This is really impacting stuff that people buy: laptops, cell phones, toys, in particular apparel. This is going to impact holiday shopping. Businesses are trying to figure out whether this tariff means that: Does this include any goods landed on September 1st? Goods already on a boat by September 1st? So there's a lot of murkiness here.
A family of four is already paying an additional $850 dollars a year in additional costs on goods and services that they're buying right now. This additional tariff will add probably somewhere between $400-$500. What this does is, for a median income, it takes away all the wage increases that consumers have had over the last couple of years. So it's a very difficult thing, and consumers are going to bear the brunt of this.
One of the challenges with tariffs is: who really pays? The Trump administration says really the Chinese government pays —that's not quite accurate. There's two people that are going to pay a tariff. It's the company that's importing the goods, or the consumer or they could share it. What we've seen in the past is companies weren't sure that the tariffs were going to go up, so they might even increase the prices more than 10%. This will ultimately impact goods going to be bought later in the holiday season. We're going to have to wait and see.
Q: Sticking with the President's Twitter account, this week he tweeted his displeasure with the chair of the Federal Reserve. This after the Fed lowered interest rates for the first time since 2008. How significant was this reduction and why isn't the president satisfied?
RELATED: Fed Cuts Interest Rates For 1st Time Since 2008
A: It's interesting, the reduction was a quarter of a point. So it's not a huge reduction. But the president and also a lot of Wall Street hope for maybe a half a point. What Chairman Powell said is that he is looking ahead, and he wants to make sure that he protects the 10 year expansion, and that he protects the wage increases that finally have gotten to the further reaches of the economy; so the real lower wage taxpayers who are finally benefiting from this 10 year recovery. The big benefit for consumers is that immediately you'll see auto loan rates, mortgage rates can start to decline. So it'll make buying a house easier, buying cars easier. Businesses can borrow a little bit more cheaply.
The decision was a tough one by the Fed. They, originally, for a long time we're going to continue to raise rates or hold the rates. On the plus side of why they wouldn't want to raise rates, or reduce rates, is the economy's doing well. Unemployment is low and inflation is low. But if inflation stays too low the Fed's target is to make sure that inflation is at a certain level to keep momentum in the economy. So inflation's been a little bit low, and then because of the trade war with China, the global slowdown, and that the tax cuts have finally kind of petered out they felt that kind of stimulating the economy right now was going to be important.
Q: Lastly, the merger between Sprint and T-Mobile is moving forward. This despite an antitrust lawsuit from some attorneys general claiming that this would reduce competition and therefore be bad for consumers and bad for workers. What's the status of this merger and why do the two companies feel that this is the right move?
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A: So the Department of Justice and the Federal Communications Commission agreed to green light the merger. As part of that merger what it does is it creates one entity, which will be called T-Mobile, and it'll be almost the same size as Verizon and AT&T. So they can compete more aggressively. Right now there's four players in the marketplace. Those two are independent companies. Sprint is in real trouble of going bankrupt. T-Mobile has been fairly successful, but they're really much smaller than AT&T and Verizon.
So the benefit is they get to cut costs. They get to increase marketing dollars, and they promised the government that they would expand 5G networks to rural areas. They would cap prices for three years and a number of other promises. And they also were going to set up a whole new competitor. Dish Network, the satellite TV company, is going to get Sprint's prepaid business and the use of all this spectrum to be a fourth competitor. The government was really concerned about keeping four competitors in the marketplace, and that's what the attorneys general are arguing against. They're saying that Dish is not a wireless company. There's no reason to believe that they would be a good fourth competitor, and they feel that only three years of locking down prices will allow these three players to raise prices after that. And today Texas joined the lawsuit as well.
