President Donald Trump made good on his threat of imposing tariffs on $200 billion worth of Chinese-made goods when he announced Monday that a 10% duty will take effect Sept. 24, rising to 25% by the beginning of next year.

The silver lining: The later timing avoids Christmas morning meltdowns from kids who missed out on trendy electronic gadgets due to increased prices. The bad news? This may not be the end of the trade war. China reacted to Monday’s announcement with talk of retaliation, which led President Trump to threaten further tariffs on another $267 billion worth of Chinese imports. That would bring the total value of Chinese goods subject to tariffs to more than $500 billion, virtually all Chinese imports.

Tariffs Explained: What They Are, How They Work, Why It Matters

For now, the administration removed nearly 300 items from the original proposed list, a nod to U.S. companies’ concerns since Trump first threatened tariffs this summer. Popular consumer electronics products such as smartwatches and Bluetooth devices are among those that dodged the higher tariffs. Some consumer safety products, such as bicycle helmets, baby car seats and playpens also were taken off the list.

It could be worse for consumers, but …

The tariffs account for nearly 40% of the $505 billion in Chinese items the U.S. imports annually. Although they will start at a more subdued 10% level, eventually, American consumers will keenly feel the pain from the swath of stiff tariffs on thousands of goods as varied as fish, baseball gloves, luggage, dog leashes, furniture, lamps and mattresses.

“What the tariffs will do is basically cause many people to pay more for whatever they buy in the stores,” said Gary Hufbauer, economist and nonresident senior fellow at the Peterson Institute for International Economics. “It could be worse … 25% is a lot different than 10%.” The PIIE is a nonprofit, nonpartisan economics research institution in Washington, D.C.

“[They thought they might have to pay] $8 for that new T-shirt, they may pay $7, whereas previously it was $5,” Hufbauer said, giving an example.

Before excluding the 300 items, almost 23% of the targeted items on Trump’s $200 billion list were consumer products, according to a July PIIE analysis. By comparison, consumer products made up just 1% of the initial $50 billion worth of Chinese products Trump put into place earlier in the summer.

Why Trump takes a step back

Delaying the full 25% duty is an attempt to mitigate potential political and economic consequences ahead of the midterm election, said Hufbauer.

For one, Hufbauer said, Trump does not want to see the stock market tank before November.

“Many of his supporters own shares, and they would blame him because they thought the stock market was dropping because of his foreign policy, his trade wars,” Hufbauer said.

The U.S. stock market on Tuesday closed higher as investors shrugged off escalating trade tensions.

There is also a concern that if high tariffs are slapped on Chinese imports, American manufacturers that import components from China may have to pay higher prices for those parts or worse, lay off workers as a result. Even though consumers don’t buy parts directly, they end up being incorporated or assembled into products that consumers eventually buy. Manufacturers must either pass along the increased cost to consumers or find other ways to cut expenses.

“Those stories are not good for a person going into an election,” Hufbauer said.

What’s at stake

When the tariffs are at the 25% level, economists estimate that consumers will have to bear about half — 12.5% to 15%— while the rest is absorbed by the producer or manufacturer.

Those who have purchased washing machines this year may have already understood how tariffs affect consumer product prices. The price of imported washing machines shot up 16.4%, three months after the Trump administration imposed 20%-50% tariffs in February, according to the American Enterprise Institute, a Washington, D.C.-based conservative think tank.

There are also indirect impacts, which may emerge more slowly, as 47% of the $200 billion tariff list comprises tens of billions of dollars of intermediate inputs — those parts and components of final products we mentioned earlier — imported from China. Consumers will likely have to spend more on items assembled with parts imported from China that are subject to high tariffs.

What’s next

Trump has been tough on trade since he was on the presidential campaign trail. He has accused China of practicing unfair trade policies, such as forcing U.S. firms to transfer technology to Chinese counterparts. Supporters of the new tariffs hope it will persuade China to play fairer on trade. Even critics agree that China has in some ways stymied growth in U.S. industries, but they also criticize Trump’s protectionist trade policy and say it will ultimately hurt industries and individuals in both countries.

It’s possible Trump will act on his rhetoric and continue to wage a trade war against China, economists said. But Hufbauer thinks Trump is trying to pressure China into making concessions ahead of the upcoming trade talks between Beijing and Washington.

If Beijing is willing to make concessions on some of the main issues Trump raised, the trade tensions could be dialed back a bit, Hufbauer said. “I don’t think we’re going to get into a happy friendly time,” he said. “But I think we could reduce the confrontation a lot if China decides to make some concessions.”

However, if 25% tariffs are imposed on total trade in both directions, then we would enter a full-blown trade war we haven’t seen since the 1930s. In that case, economists said American companies that rely on global supply chains will hold off on investment decisions due to the uncertainty around global trade, which will negatively affect the U.S. economy and eventually cause the unemployment rate to swing up.

“Using the terminology of war, Trump’s misguided trade war is generating lots of collateral damage and friendly fire that is putting [America’s] companies, workers and consumers at great risk,” said Mark Perry, an economics policy scholar at the American Enterprise Institute and professor of finance and business economics at the University of Michigan-Flint.

This month marks the 10th anniversary of Lehman Brothers’ bankruptcy, a collapse synonymous with the 2008 financial crisis. The U.S. emerged from the Great Recession in 2009, entering what may be one of the country’s longest periods of economic expansion.

But if all good things must end, it’s natural to wonder when to expect the next downturn and how to prepare. There’s chatter that a recession is on the horizon, and while no one knows exactly when, some economists think the U.S. economy could enter a downturn in 2020. The Federal Reserve also signals that gross domestic product — the value of all goods and services produced across the economy — will slump in 2020. Echoing fellow economists, Tendayi Kapfidze, chief economist at LendingTree, MagnifyMoney’s parent company, said he expected the economy to slow the second half of 2019.

“This does not mean it will go into recession though,” he noted, “although the risks are higher when underlying growth is slower.”

When the economy takes a turn for the worse, it could put your financial goals, as well as your job, in jeopardy. It’s time to take a look at your overall financial picture — investment, savings and debt — to make sure you will be in a strong position to ride out any potential economic storms.

MagnifyMoney surveyed nearly a dozen certified financial planners to help you prepare for the next recession, financially and mentally. They shared four pieces of advice to reduce risks.

The bottom line

No one likes a recession, but all economic cycles have their peaks and their troughs. Avoid letting a recession dictate your financial goals and decisions. Don’t make drastic changes to your stock portfolio based on fear. You can prepare for the recession now by revisiting your 401(k) portfolio and making sure you have a balanced mix appropriate for your own risk tolerance. When the next downturn occurs, remember that another expansion will eventually arrive. As for reducing debt, establishing an emergency fund and setting aside cash for short-term needs, these are good financial habits to have even when the economy is humming along.

Although an increasing number of states has passed laws to protect consumers by capping interest rates on payday loans, lenders have found creative ways to get around those regulations and issue loans with sky-high rates.

“We see payday lenders utilizing schemes just to get out from as many kinds of restrictions as they can,” said Diane Standaert, director of state policy at the Center for Responsible Lending, a nonprofit, nonpartisan organization focused on consumer lending.

Here are three common strategies lenders use to exploit loopholes:

2. Lenders operate as loan brokers

In Ohio and Texas lenders bypass state interest rate caps by acting as credit service organizations instead of direct lenders. A CSO basically refers borrowers to loans from third-party lenders. And that lender can tack on a sky-high CSO fee to your loan.

“That credit service organization is really not providing any value,” said Christopher Peterson, director of financial services and senior fellow at the Consumer Federation of America. “What’s really happening is that businesses exploit a loophole to generate effectively very high-interest rates; they are just doing it through a cocktail of broker fees and interest rates together.”

Take Ohio, for example. In 2008, the state passed the Short Term Loan Act, which caps the maximum short-term loan amount at $500 and the APR at 28%. But lenders can simply become licensed CSOs, which enables them to charge an additional fee to make up for the lost interest revenue.

In Ohio, RISE currently charges a CSO fee of $917.56 on a $1,000 loan — resulting in an effective APR of 299%. And LendUp, another online lender, charges a CSO fee of between $20 and $25 per $100 to borrowers in Ohio. But Ohio lawmakers have made efforts to close this loophole: In July 2018, Gov. John Kasich signed a bipartisan bill into law to restrict short-term loans.

Under current Ohio state law, CSOs are barred from selling, providing or brokering any loan that is less than $5,000 with an APR higher than 28% — or a loan with a term shorter than a year. The law increases the maximum short-term loan amount to $1,000 from $500, but limits loan terms to 12 months and caps the cost of the loan to 60% of the original principal.

The new rules will go into effect in May 2019. Horowitz said the act will provide lower-cost direct lending to Ohio borrowers, whose cost will be three to four times lower than the state’s current CSO rate. Standaert said that although the new law is an improvement on the current market, it still leaves borrowers exposed to high-cost direct loans because it legalizes a number of charges, including monthly maintenance, loan origination and check collection fees. This can send APRs through the roof, even with the CSO loophole is closed.

More than 3,000 CSOs operate in Texas, which is why it’s called the “Wild West” of payday lending. According to Texas Faith for Fair Lending, a grassroots consumer advocacy group, more than 98% of registered CSOs in this state are payday and auto title lenders.

3. Lenders issue lines of credit instead

Some states have a payday lending statute in place that sets interest rate caps but not for other types of loans, such as a line of credit.

A line of credit works like a credit card, only at a much higher price point. The lender allows you to borrow money up to your line’s limit and charges interest when you draw on the money. Once you repay the funds you borrower, that money is available for you to use again.

Horowitz said lenders in Rhode Island, Virginia and Kansas can charge more in fees and interest by issuing lines of credit instead of payday lending statutes. CashNetUSA, a major online payday lender, charges a 15% transaction fee in Virginia and Kansas when you draw on your credit line on top of the 299% APR, which makes the effective APR much higher.

There’s no getting around the fact that consumers rely on short-term installment loans to fill gaps in financing when they don’t have better alternatives. Although it’s a good sign that many states have capped rates on payday loans, it’s clear that payday loan alternatives can be just as expensive — if not more. It is crucial for consumers to be savvy about which types of loans they choose and compare several options to get the best deal available.

Start with your local credit union or community bank

Many community banks and credit unions offer small-dollar loans at much lower interest rates than you’ll get with a payday or payday installment loan.
For example, all federal credit union loans have an 18% interest cap, except for the Payday Alternative Loans, which are capped at 28%. In addition, these financial institutions are much better regulated than the high-cost lenders.

Shop around and compare

Ideally, you want to look for a fixed-rate loan with an APR of 36% or less. At LendingTree, the parent company of MagnifyMoney, you can shop and compare offers from multiple lenders at once. Fill out a short online form and you can be matched with offers from up to five personal loan lenders. If you’d rather shop by visiting lenders online directly, see if they offer a prequalification tool that will enable you to check your rate and determine if you can prequalify without requiring a hard credit pull.

Check out our review of the best personal loans for people with bad credit. And if you’re wary of taking out a personal loan, check out this guide to the best options when you need money quickly.

APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

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