Aug 12, 2019 - Economy

More hidden fees may be on the way from Trump's China trade war

Illustration of dollar signs being revealed under torn paper

Illustration: Sarah Grillo/Axios

The U.S.-China trade war looks set to continue and likely escalate, bringing more tariffs to imports of Chinese goods, with the latest round adding a 10% charge to consumer products like clothing, toys and electronics.

Between the lines: Large retailers like Walmart and Target have said they will have no choice but to pass the cost of tariffs on to customers, but it's very likely the cost of the tariffs and many other increased charges won't be fully disclosed on price tags.

What's happening: Research from Diego Aparicio and Roberto Rigobon of MIT finds that in recent years it has become almost impossible for companies to raise prices. Instead they resort to "shrinkflation" — reducing the size of products or their quality while charging the same price, per the Economist.

  • "A 5.5% jump in the cost of a pint after years of 5% increases does not send beer drinkers searching for other pubs in the way that a 0.5% hike after years of no change might," the magazine explains. "Thus falling inflation can make prices 'stickier.' To compensate, firms instead find other ways to impose costs on buyers."

Be smart: Consumers have seen this phenomenon recently from companies like Postmates and DoorDash, who have padded revenues by hiding the true price of their service in various hidden fees or even dressed up as "tips."

  • As GrubHub CEO Matt Maloney pointed out in a recent interview with Axios' Kia Kokalitcheva, when customers order via most delivery services, they find multiple charges like a "small plate fee" or "service fee" wrapped into the overall price that can add up to much more than the advertised delivery charge.

Flashback: The Obama White House issued a report on such fees in 2016, detailing the ways companies in the automotive, banking, concert and telecom sectors, to name just a few, hide their real prices from consumers.

  • These hidden fees have become entrenched revenue generators for businesses like hotels, which reap big profits from hidden "resort fees," and airlines that charge for services previously included in the airfare, like baggage or seat assignments.

The bottom line: A major outcome of President Trump's trade war with China may be that consumers get stuck with higher prices and lower quality goods that still don't move the needle on inflation because companies aren't marking up the price of the items themselves.

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