President-elect Donald Trump has promised to lower prices for food, rent and other basic necessities.
U.S. presidents typically don’t have direct control over how much these things cost, but their policies can have an impact.
In Trump’s case, the proposals that economists believe could have a significant impact are tariffs or import taxes.
Why Trump tariffs could be bad for prices
On Monday, Trump threatened to introduce modern tariffs on Mexico, Canada and China – the United States’ three largest trading partners – immediately after he took office on January 20th.
The Republican said the modern rate would be 25% for goods from Canada and Mexico, as a pressure campaign to curb illegal drug trafficking and immigration. Trump proposed an additional 10% on China after previously promising a 60% tariff on products from there. He has also proposed tariffs of between 10% and 20% on other imports.
Trump says his plans will bring manufacturing jobs back to the US. But economists say Trump’s proposals will put a strain on American families’ wallets with more high-priced cars, appliances and technology.
Wayne Winegarden, senior fellow in economics at the right-leaning Pacific Research Institute, said additional tariffs would not only raise the price of foreign goods but also domestically made ones.
“We import steel, which is used to make cars, so cars are becoming more expensive,” Winegarden said. “Prices may rise.”
Winegarden said he views the tariffs as a broad-based consumption tax that will negatively impact the economy.
“How bad it is just depends on what the rates are, and there will be secondary effects on how other countries respond as well,” he said. “Even if they don’t respond – I think this is important for people to know, even if no one raises tariffs in response to us – we are still making things worse for families in the United States.”
In a scenario with a broad tariff rate of 10% and a China tariff rate of 60%, even if there were no retaliation against the tariffs, the impact on households would be an additional $2,421 per household in 2023 accordingly the Budget Lab at Yale University, a nonpartisan research center.
What about inflation?
The economy was a major concern for many voters in the presidential election, although inflation has generally slowed since a peak of 9.1% in June 2022.
In October, 62% of registered voters said the economy was in bad shape.
Economists But say, Prices are unlikely to fall broadly to the levels seen during Trump’s first term. If prices fell that much, it would likely be the result of a delicate economy.
Lauren Saidel-Baker, an economist at ITR Economics, a nonpartisan economic research and consulting firm based in New Hampshire, said her forecast is that inflation will continue to tardy through the end of the year and pick up again early next year.
Saidel-Baker said she had this expectation before considering Trump policies because the money supply is increasing, which leads to a faster pace of transactions. But tariffs are one of their main concerns about the impact of Trump’s policies on inflation next year. She said goods inflation is currently under control, while the services sector is more affected by inflation due to a tighter labor market. Goods inflation could pick up again under the Trump administration.
“Tariffs could cause goods to catch up again. But we have long-term demographic problems that will keep the labor market tight. “I don’t think service sector inflation is going to improve much, especially if we do things like these mass deportations that will reduce the working-age population,” Saidel-Baker said.
What we know from past Trump tariffs
During his first term, Trump imposed tariffs on imports of steel and aluminum, solar panels and washing machines, to name a few. Several countries responded with retaliatory tariffs, including China.
Although Trump’s tariffs increased jobs in the steel and washing machine industries, in the long run it resulted in a 0.2% decline in GDP and a loss of 142,000 full-time jobs, according to the Tax Foundation, a tax policy think tank. appreciated.
“We already have evidence of how his tariffs from his first term will play out. And they are not positive. “It didn’t achieve what it promised,” Winegarden said.
Marshal Cohen, senior industry analyst at the NPD Group, a market research firm, said many companies had already moved production out of China because of Trump’s initial tariffs. Steve Madden CEO Edward Rosenfeld explained announced in a conference call that the company is implementing a plan to reduce its dependence on China, where more than 70% of its imports come from.
Cohen said that despite this shift, certain goods could be hit harder by tariffs, such as technology, cars, home appliances and the toy industry, that are based in China or have many ties to China.
How companies will react
Pursue like for example Columbia Sportswear, AutoZone and Stanley Black & Decker have said they will raise prices in anticipation of tariffs.
“If we receive tariffs, we will pass those tariff costs on to the consumer,” AutoZone CEO Philip Daniele said in an earnings call.
Isabella Weber, an associate professor of economics at the University of Massachusetts Amherst who recently co-authored a paper on companies’ pricing strategies, said how comfortable companies are with raising prices depends on how much sales fall.
“We saw that companies were willing to increase prices even when there was a decrease in the quantity sold. Therefore, a drop in demand is not necessarily a reason for companies not to increase prices,” she said. “Of course, there comes a point where further price increases no longer improve the bottom line if sales fall too sharply. In some segments, particularly where low-income households are important consumers, such as fast food, this point could have been reached.”
