New China tariffs: Are U.S. consumers at risk?

NEW YORK (CNNMoney.com) -- Last week's abrupt 180-degree turn in U.S.-China trade policy is stirring up plenty of concern - and confusion - on either side of the globe.

The Commerce Department announced on Friday that it would begin to impose tariffs on some subsidized goods from China.

This reverses a 23-year old policy of not applying countervailing duties on cheap goods from non-market countries like China.

Joseph Chan, a Hong Kong-based businessman, is worried.

Chan's company, Million Sources Development, exports "coated" or "glossy" paper that's used in inkjet printers and posters, to the United States and to other countries in Asia and Europe.

Although the Commerce Department said the first duties will be applied to imported "coated free" paper, the type used in catalogs, magazines, ad circulars and annual reports, Chan fears those tariffs could expand to his products as well and hurt his sales, which he says are "somewhere in the low millions of dollars."

Moreover, he's confused about whether the U.S. will also tax his other paper products that weren't even initially manufactured in China.

"We import paper in jumbo rolls from Japan and Korea and then cut [it] in China to market-needed sizes and then export them. Will this again be covered under the tax?" he wondered.

China's Ministry of Commerce, through a statement on its Web site on Monday, said it was "strongly dissatisfied" with Friday's announcement and said it "strongly [required] the U.S. to reconsider the decision.

Meanwhile, Erik Autor with the National Retail Federation (NRF), the trade group that represents the nearly $5 trillion U.S. retail industry, is equally perplexed.

Autor, who's an international trade counsel with the NRF, feels that the Bush administration made its decision "willy nilly," giving no opportunity for public comment.

"And we complain about China not being transparent. I understand that the administration is under a lot of political pressure from Congress about the trade deficit with China, but this isn't appropriate," Autor said.

Indeed, U.S. manufacturers have long been lobbying Congress to address the record $232.5 billion trade deficit with China, which continues to displace domestic production and jobs. They want lawmakers to impose tougher fair-trade measures.

However, Autor's concerns are from a slightly different perspective.

Industry watchers say retailers have never been a big proponent of countervailing duties. And for good reason. The retail industry imports most of what it sells in stores.

"Almost every toy sold in the United States is imported from China. 70 percent of shoes imported are from China. We import 70 to 75 percent of clothing, and 20 percent of that is from China," he said. "With consumer electronics, housewares, furniture, China is either the principle supplier to American retailers or one of the top suppliers."

This makes merchants and consumers especially vulnerable to the knock-on effect of trade tariffs against America's second-largest trading partner.

Autor said the United States already imposes duties against the dumping of cheap Chinese goods. "Dumping" refers to the practice of selling goods abroad below the cost of production or below the price of the product in the domestic market.

Autor argues that if the administration decides to extend anti-subsidy tariffs to consumer goods - on top of anti-dumping duties - it would amount to giving U.S. manufacturers two bites at the apple.

"For the same product that they're petitioning for fair trade measures, they get two remedies," he said, noting that this would also put the United States on thin ice under current World Trade Organization rules.

Such a move would hurt both consumers and sellers. He said the best example is the anti-dumping case brought forward by the domestic wooden bedroom furniture makers.

In 2004, American furniture makers had petitioned the Commerce Department asking for tariffs on imports of bedroom furniture from China. They alleged that Chinese bedroom furniture was being sold in the U.S. at unfairly low prices, killing their business and forcing them to eliminate domestic jobs.

Autor said the furniture makers' coalition asked for tariffs as high as 400 percent to be levied on furniture imports from China. This would have added thousands of dollars to the sticker price of beds and dressers and other items.

Retailers feared that such a move would have significantly eroded furniture demand among American shoppers.

"The petitioners won the case. But fortunately for retailers, the government agreed to a much lower penalty rate of a little as 6 percent," he said.

"For retailers placing an order in China, they don't know if an anti-dumping case could be filed at any time on that product by a domestic manufacturer," Autor said. "And if duties are then applied on those imports, retailers not only have to pay the duties on arriving cargo but they also could be asked to retroactively pay duties on those products that were already sold in the U.S."

This impacts retailers' bottom line. Eventually, store chains could decide to pass on the extra costs to consumers in the form of higher prices, he said.

To that end, Wal-Mart (Charts), the world's largest retailer, which imports more than $20 billion of goods from China, is urging a "balanced approach."

"We urge a balanced approach to encouraging healthy two-way trade between the U.S. and China," Wal-Mart spokeswoman Amy Wyatt wrote in a statement e-mailed to CNNMoney.com.

"We understand the importance of U.S. trade laws as well as the need to open the Chinese market to the export of more U.S. products. The use of countervailing duties is part of U.S. trade remedies with most of our trading partners and the application to China has been expected for some time," she said.

However, Wyatt added that because Wal-Mart sources goods from more than 70 countries, the company does not currently anticipate a material impact on its business from the latest change in the U.S.-China trade policy.

Said Autor: 'At a time when we're trying to get China to adhere to its WTO obligations and open up its market to more U.S. goods, we're not setting a good tone for success."

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