Bad news for your wallet, Trump’s proposed tariff hike could bring dire consequences
Trump said during the 2024 campaign that his favorite word was “tariffs” but it may not be that for consumers who could see higher prices at the register.
President-elect Donald Trump will take office in less than two months, but he isn’t waiting to sit behind the Resolute Desk in the Oval Office to lay out his plans for his next term. During the 2024 campaign he said that his favorite word was “tariffs,” which he planned to levy on imports into the United States.
This past week he gave more clarity on how much he wanted to tax goods coming into the US and from whom. Trump said that he would impose an additional 10% tariff on goods from China and place a 25% tariff on goods from Mexico and Canada. The three countries account for 43% of goods imported into the United States.
While he, and some of his Cabinet picks may like tariffs, American consumers may not once they begin to see higher prices for purchases. A new analysis from Goldman Sachs forecasts that the Trump tariffs could increase inflation just as policymakers at the Fed are managing to get it under control.
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Bad news for your wallet, Trump’s proposed tariff hike could bring dire consequences
Tariffs are essentially a sales tax that importers, US companies, pay to bring goods into the country. That cost they either have to chose to eat, cutting their profits or other expenses like salaries to shore up their bottom line, or pass the increase onto consumers.
Trump has said that the new tariffs will be across the board, so that will affect everything from electronics, appliances, and cars to fruits and vegetables as well as oil and timber among other goods and raw materials. Trump has said that he plans to enact the new levies on “day one” in the White House.
CNBC reports that Jan Hatzius, Goldman’s chief economist, said that the proposed tariffs “would result in a notable increase for consumer prices in the US,” in a note to investors. “Using our rule of thumb that every 1 [percentage point] increase in the effective tariff rate would raise core PCE prices by 0.1%, we estimate that the proposed tariff increases would boost core PCE prices by 0.9% if implemented,” the Goldman Sachs economist said.
The American consumer, workers and economy will pay for Trump’s tariffs
Philip Daniele, CEO of AutoZone, told investors on an earnings call in September that “if we get tariffs, we will pass those tariff costs back to the consumer,” reported CNN. “We generally raise prices ahead of that,” he said, meaning that even before the tariffs are implemented consumers will begin to see higher prices.
Economists warn that tariffs will not only push up prices but are likely to affect employment and American exports as well. The last time around, Trump’s tariffs against China started a tit-for-tat trade war. Studies since have concluded that the average household was paying on average $500 more for goods by the end of 2019.
Additionally, the Federal Reserve has been wrestling with inflation since the end of the pandemic. Rising prices are finally approaching the central bank’s target but are still elevated. The additional inflationary pressure could change policymakers opinion on cutting rates next year resulting in still more higher costs for American consumers that borrow money.
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