As the U.S.-China trade war drags on, here's what it means for you

The latest exchanges between the United States and China over tariffs and currency made clear that trade tensions between the world's largest economies aren't going away anytime soon.

In the span of a few days, President Donald Trump said he would soon impose 10 percent tariffs on $300 billion in Chinese goods; Beijing allowed its currency to weaken to an 11-year-low; and the U.S. fired back by labeling China a "currency manipulator." Rattled investors sent stock markets deep into negative territory, rushing to gold, bonds and other safe havens.

For the average person, the headlines may seem theoretical. But if the dispute drags on, there are real-life ramifications for workers' wallets, including their savings, debt loads and spending power.

- Potentially higher prices:

Consumers might have missed the earlier rounds of tariffs on Chinese imports because they affected industrial materials and supplies that don't show up on most shopping lists. But the 10 percent tariffs announced last week will raise prices on just about everything Americans buy - from smartphones and toys to shoes and furniture.

The tariffs could cost the average household another $650 a year, according to estimates from Kathy Bostjancic, chief U.S. financial economist for Oxford Economics. And the larger price tags could compel people to cut back on spending or make it tougher for them to pay their bills, Bostjancic said.

The burden on consumers could be eased if China and the U.S. reach a deal that keeps the new tariffs from taking effect Sept. 1 as scheduled. Some companies may hold back on raising prices and opt to absorb some of the costs themselves, said Paul Christopher, head of global market strategy for Wells Fargo Investment Institute.

- More stock market turmoil:

The latest escalation in the trade war spooked investors Monday, causing all three major U.S. stock indexes to nose-dive: The Dow Jones industrial average fell 2.9 percent, the Standard & Poor's 500 was off nearly 3 percent and tech-heavy Nasdaq Composite plunged 3.5 percent. Though Wall Street was in recovery mode Tuesday, investment analysts say they expect the turbulence to continue until the U.S. and China resolve their differences.

"What you're seeing is both sides building up leverage," Christopher said. "We're not going to see the volatility go away until A, the markets get used to it, or B, we actually start to see some progress coming out of these negotiations."

The volatility affects the value of workers' 401(k) and other retirement accounts, though investors are typically advised to avoid making changes until the markets calm down. Selling stocks while markets are tanking tends to lock in losses, Christopher said. People who want to buy more stocks should also hold off until the market swings are less dramatic, he said. The next round of trade negotiations could bring more clarity, he said.

"Then you might see some new optimism," Christopher said. "Or you could see some more downside until we get to that point."

- Lower interest rates:

When the Federal Reserve lowered its benchmark interest rate on July 31, officials cited growing trade tensions as one of the main risks to the economy while also stating that the move was "not the beginning of a long series of rate cuts." The recent deterioration between Washington and Beijing might influence what the central bank does next.

"If the trade situation gets worse, the Fed will cut rates by more in an attempt to limit the damage to the economy," said Brian Rose, senior Americas economist at UBS Global Wealth Management.

Lower rates are a mixed bag for consumers, Bostjancic said. On the one hand, mortgages and auto loans become more affordable, she said. But people would also earn less interest on their savings.

- More economic angst:

An extended trade war could be more bad news for the overall economy. Businesses may hold off from investing in new plants or hiring until a trade deal is in place.

Such a pullback could lead to slower job growth and, in turn, affect consumer spending, which is the biggest driver of the U.S. economy. "That would be a concern," Bostjancic said.

Still, there is a lot that needs to change before the economy takes a real turn for the worse. The trade war could be resolved relatively soon and, in turn, encourage businesses to boost investment and persuade consumers that it's OK to spend.

"For now there seems to be enough domestic resilience that we're not headed for a sharp downturn or a recession," Bostjancic said.