Companies and consumers prepare for the impact of Trump's tariffs
Americans are becoming increasingly disheartened about the economy as they come to terms with the likelihood of additional rises in their living expenses.
TroibNews 
Donald Trump’s tariff wars are raising concerns about the potential for increased inflation in the coming months. Even though he has not made extensive moves, the president appears to be putting upward pressure on prices already.
So far, Trump’s principal action has been to impose an additional 10 percent tariff on all Chinese goods imported into the U.S. However, he has indicated that he has numerous other substantial targets in sight, including steel and aluminum, copper, autos, and pharmaceuticals, as well as all imports from Canada, Mexico, and the European Union. There are also possibilities for reciprocal tariffs on every country globally.
Trade-related impacts are already becoming apparent. A recent survey found that 43 percent of Americans noticed the tariff threats leading to higher prices. Key consumer sentiment indicators for this month show an uptick in inflation expectations. Additionally, stocks for major companies like Walmart have been adversely affected, reflecting concerns about rising import costs.
“There’s some anecdotal evidence that firms are already starting to pull through prices,” said Tim Duy, chief economist at SGH Macro Advisers. “That could start to bite here in the next couple of months.”
The Commerce Department released inflation data from January, which did not yet exhibit significant effects from the tariffs. Still, inflation has persisted above the Federal Reserve’s 2 percent target, and additional price hikes may soon be mirrored in the statistics.
The consequences of Trump’s tariff policies could significantly impact the success of his presidency. The surge in inflation under President Joe Biden contributed to Trump’s electoral victory in November, as he vowed that “Starting on Day 1, we will end inflation and make America affordable again.” Nevertheless, consumers are becoming increasingly pessimistic about the economy amid expectations of rising living costs, despite low unemployment and stable growth.
Currently, this gloomy outlook appears more widespread among Democrats in recent polls, but potential issues extend beyond party lines.
Broad tariff-driven price increases could complicate the situation for Fed Chair Jerome Powell as he assesses whether rising costs are due to long-term trends—suggesting a need for higher borrowing costs—or merely temporary price adjustments.
Rising costs for businesses could also hinder economic activity. U.S. imports surged nearly 12 percent in January, marking the largest increase in 35 years, aside from July 2020, likely in anticipation of impending tariffs. In contrast, consumers reduced spending and increased savings in January, indicating a preliminary but concerning trend regarding the economy’s future.
Trump’s choice for chief economist, Stephen Miran, presented a more optimistic view on Thursday. He cited “a period of extraordinary economic transformation” in the 1800s with higher tariffs, as well as rapid economic growth following World War II when “the tariff rate on dutiable imports was in excess of 30 percent.”
“Now, I don't want to claim that correlation is causation, but nevertheless, you know the historical record is very clear that the American economic story has seen periods of high tariff rates coincide with extraordinary economic success,” Miran stated during his Senate Banking Committee confirmation hearing.
The proposed tariffs by Trump present uncertainties regarding their extent, scale, and duration, making it challenging to predict their precise impact on households, businesses, and the broader economy.
A critical aspect will be the observable effects of the new tariffs on China.
“During the tariff waves in the first Trump term, we saw import prices rise almost immediately after the tariffs went into effect,” noted Amit Khandelwal, a professor at Yale University. “It is harder to know if [and] how long it will take for those border price increases to be reflected in retail prices that consumers see.”
Tariffs on durable goods may take several months to influence pricing due to pre-existing retailer inventory, whereas prices for items more directly shipped to consumers might increase immediately.
There could be other mitigating factors as well. Both Miran and Treasury Secretary Scott Bessent pointed out that U.S. tariffs often enhance the dollar’s value, bolstering Americans’ purchasing power and countering elevated import costs.
Additionally, some of the cost burden might be absorbed by foreign exporters, similar to what occurred with steel tariffs during Trump’s first term. However, studies have found that most of the costs associated with his tariffs were primarily borne by domestic businesses and consumers.
A recent study by Yale’s Budget Lab estimated the potential price impact of 25 percent tariffs on automotive, pharmaceutical, and semiconductor imports. It determined that prices under the Personal Consumption Expenditures index—the Fed’s preferred inflation measure—would rise by 0.5 percent if other countries do not retaliate and by 0.7 percent if they do.
This translates to an annual cost increase for consumers of approximately $900 to $1,100, even considering anticipated fluctuations in the dollar’s value.
Ernie Tedeschi, director of economics at the Budget Lab and a former White House economist under Biden, explained that this is a short-term estimate of price increases expected within the next year. He added that consumers might eventually change their purchasing habits or companies may adapt their supply chains.
In the long run, he suggested, the effects are less certain.
“We could actually end up with lower prices because we have a weaker economy,” Tedeschi remarked.
Navid Kalantari contributed to this report for TROIB News
So far, Trump’s principal action has been to impose an additional 10 percent tariff on all Chinese goods imported into the U.S. However, he has indicated that he has numerous other substantial targets in sight, including steel and aluminum, copper, autos, and pharmaceuticals, as well as all imports from Canada, Mexico, and the European Union. There are also possibilities for reciprocal tariffs on every country globally.
Trade-related impacts are already becoming apparent. A recent survey found that 43 percent of Americans noticed the tariff threats leading to higher prices. Key consumer sentiment indicators for this month show an uptick in inflation expectations. Additionally, stocks for major companies like Walmart have been adversely affected, reflecting concerns about rising import costs.
“There’s some anecdotal evidence that firms are already starting to pull through prices,” said Tim Duy, chief economist at SGH Macro Advisers. “That could start to bite here in the next couple of months.”
The Commerce Department released inflation data from January, which did not yet exhibit significant effects from the tariffs. Still, inflation has persisted above the Federal Reserve’s 2 percent target, and additional price hikes may soon be mirrored in the statistics.
The consequences of Trump’s tariff policies could significantly impact the success of his presidency. The surge in inflation under President Joe Biden contributed to Trump’s electoral victory in November, as he vowed that “Starting on Day 1, we will end inflation and make America affordable again.” Nevertheless, consumers are becoming increasingly pessimistic about the economy amid expectations of rising living costs, despite low unemployment and stable growth.
Currently, this gloomy outlook appears more widespread among Democrats in recent polls, but potential issues extend beyond party lines.
Broad tariff-driven price increases could complicate the situation for Fed Chair Jerome Powell as he assesses whether rising costs are due to long-term trends—suggesting a need for higher borrowing costs—or merely temporary price adjustments.
Rising costs for businesses could also hinder economic activity. U.S. imports surged nearly 12 percent in January, marking the largest increase in 35 years, aside from July 2020, likely in anticipation of impending tariffs. In contrast, consumers reduced spending and increased savings in January, indicating a preliminary but concerning trend regarding the economy’s future.
Trump’s choice for chief economist, Stephen Miran, presented a more optimistic view on Thursday. He cited “a period of extraordinary economic transformation” in the 1800s with higher tariffs, as well as rapid economic growth following World War II when “the tariff rate on dutiable imports was in excess of 30 percent.”
“Now, I don't want to claim that correlation is causation, but nevertheless, you know the historical record is very clear that the American economic story has seen periods of high tariff rates coincide with extraordinary economic success,” Miran stated during his Senate Banking Committee confirmation hearing.
The proposed tariffs by Trump present uncertainties regarding their extent, scale, and duration, making it challenging to predict their precise impact on households, businesses, and the broader economy.
A critical aspect will be the observable effects of the new tariffs on China.
“During the tariff waves in the first Trump term, we saw import prices rise almost immediately after the tariffs went into effect,” noted Amit Khandelwal, a professor at Yale University. “It is harder to know if [and] how long it will take for those border price increases to be reflected in retail prices that consumers see.”
Tariffs on durable goods may take several months to influence pricing due to pre-existing retailer inventory, whereas prices for items more directly shipped to consumers might increase immediately.
There could be other mitigating factors as well. Both Miran and Treasury Secretary Scott Bessent pointed out that U.S. tariffs often enhance the dollar’s value, bolstering Americans’ purchasing power and countering elevated import costs.
Additionally, some of the cost burden might be absorbed by foreign exporters, similar to what occurred with steel tariffs during Trump’s first term. However, studies have found that most of the costs associated with his tariffs were primarily borne by domestic businesses and consumers.
A recent study by Yale’s Budget Lab estimated the potential price impact of 25 percent tariffs on automotive, pharmaceutical, and semiconductor imports. It determined that prices under the Personal Consumption Expenditures index—the Fed’s preferred inflation measure—would rise by 0.5 percent if other countries do not retaliate and by 0.7 percent if they do.
This translates to an annual cost increase for consumers of approximately $900 to $1,100, even considering anticipated fluctuations in the dollar’s value.
Ernie Tedeschi, director of economics at the Budget Lab and a former White House economist under Biden, explained that this is a short-term estimate of price increases expected within the next year. He added that consumers might eventually change their purchasing habits or companies may adapt their supply chains.
In the long run, he suggested, the effects are less certain.
“We could actually end up with lower prices because we have a weaker economy,” Tedeschi remarked.
Navid Kalantari contributed to this report for TROIB News
