Trump’s Tariffs: The Impact on Consumers and Businesses
Introduction
President Donald Trump’s threats to impose tariffs on imports from the United States’ three largest trading partners have sent shockwaves through the economy. Even if temporary pauses are reached, as in the case of Mexico and Canada, experts warn that these tariffs will likely slow production and drive up prices.
Impact on Prices
Mike Skordeles, head of U.S. economics at Truist, predicts that while prices are expected to increase across the board, some items will experience a price bump more quickly than others. Perishable foods, such as fresh fruit and vegetables, are especially vulnerable.
According to the U.S. Department of Agriculture, the U.S. receives 51% of its fresh fruit and 69% of its vegetables from Mexico. A one-month pause on 25% tariffs for these items does not guarantee that their prices will not rise.
"If I was a producer, I’d say I need to get a little more for that stuff because there is a risk it might get shut down in a month," Skordeles said.
In contrast, companies can stockpile car parts more easily, providing a buffer against price increases. However, avocados, which spoil within a week, cannot be stockpiled, making them prime candidates for rapid price increases.
Dr. Michael Swanson, a Wells Fargo Agri-Food Institute chief agricultural economist, notes that price increases for perishable foods may not be noticeable until after the Super Bowl. However, he cautions that these increases will likely become apparent in the coming weeks.
Impact on Industries
Tariffs can have a ripple effect throughout the economy, affecting various industries.
Trump’s proposed 10% tariff on Canadian oil, for example, could increase the price of gasoline by 16 cents per gallon. This cost increase would then be passed on to consumers and businesses, affecting the transportation of goods and services.
Unintended Consequences
Skordeles emphasizes the unintended consequences of these tariffs, calling it "a mess."
One such consequence is the disruption of supply chains that have historically operated smoothly under free trade agreements.
For instance, the automotive industry faces potential price hikes and production delays due to the complex nature of its supply chain. Passenger vehicles and vehicle parts are among the top imports from Canada, and multiple border crossings are often required during production.
Tariffs can increase the time and cost of these border crossings, which can be passed on to consumers in the form of higher prices. This can also lead to supply shortages, further driving up prices.
Impact on Consumers
Consumers will likely face higher prices for a range of goods, including cars, both new and used. Imported products or those heavily dependent on imported parts will see the most significant price increases.
Tariffs on China are expected to have a more lasting impact than those on Canada and Mexico. Unlike domestic substitutions for imports from neighboring countries, there are few alternatives for Chinese-made products like iPhones.
Conclusion
President Trump’s tariffs on imports from the United States’ three largest trading partners are likely to have a significant impact on both consumers and businesses. Prices are expected to rise, particularly for perishable foods and imported products. Supply chain disruptions, production delays, and unintended consequences will further exacerbate these price increases.
