Will Trump’s Tariffs Raise Prices? What To Know As He Targets Goods From Canada And Mexico

Posted by Admin November 26, 2024 Jobs

Topline

President-elect Donald Trump announced Monday he’ll levy tariffs on imports from China, Mexico and Canada after he takes office—going against the views of many economists who believe Trump’s plan would burden everyday consumers, even as the ex-president has claimed otherwise.

Former President Donald Trump arrives to speak at a campaign rally at the Mohegan Sun Arena at Casey … [+] Plaza on Aug. 17 in Wilkes-Barre, Pennsylvania.

Key Facts

Trump had long proposed raising tariffs—or taxes on imported goods that the businesses importing them pay the U.S. government—before the election, and made those plans more concrete Monday, saying on Truth Social he’ll impose a 25% tariff rate on all imports from Mexico and Canada on the first day of his presidency and will impose an additional 10% tariff rate on all imports from China on top of other tariffs.

The 25% proposal marked an escalation from his campaign claims, as the ex-president previously proposed raising tariffs by 10%, or by 60% on goods imported from China—which is up from approximately 1% and 11% now, respectively, according to data from research firm Wolfe Research cited by the Wall Street Journal.

Vice President Kamala Harris slammed Trump’s plan on the campaign trail, saying it was “in effect, a national sales tax on everyday products and basic necessities”—reflecting the view of economists, who have broadly projected Trump’s tariff plan will raise prices for consumers.

While the cost of tariffs can be absorbed by some combination of U.S. businesses that import goods, the customers who purchase them and foreign businesses that export them—which might lower their prices to make up for the tariffs—the right-leaning Tax Foundation found previous tariffs levied during Trump’s first term were paid by U.S. businesses and consumers.

Goldman Sachs economists led by Ronnie Walker projected in April that prices on consumer goods would go up by 0.1% for every percentage increase in the effective tariff rate and raise inflation rates for one year, noting that in addition to the price of imported goods going up, it’s also likely the price of domestic goods would increase, because U.S. manufacturers would “opportunistically” raise their prices to take advantage of having less competition in the marketplace.

Economists also broadly believe Trump’s proposed tariff plan would hurt the U.S. economy, with a May analysis by the nonpartisan think tank Peterson Institute for International Economics (PIIE) concluding Trump’s campaign trail proposal would “[inflict] significant collateral damage on the US economy,” citing a range of factors including decreased consumer spending, increasing unemployment rates and worse economic growth.

Moody’s projected Trump’s tariff plan that he proposed during the election—with 10% tariffs across the board and 60% tariffs on Chinese goods—would result in a reduction of 675,000 U.S. jobs and increase the unemployment rate by 0.4%, with Moody’s chief economist Mark Zandi telling CNN, “If Trump increases tariffs as he has proposed, the economy would likely suffer a recession soon thereafter.”

Get Forbes Breaking News Text Alerts: We’re launching text message alerts so you’ll always know the biggest stories shaping the day’s headlines. Text “Alerts” to (201) 335-0739 or sign up here.

Big Number

$1,700. That’s how much Trump’s tariff proposals would cost middle-class U.S. households in increased taxes each year, as projected by PIIE based on a 10% tariff rate. The think tank also estimated for those in the bottom half of U.S. income brackets, Trump’s tariff proposals would reduce households’ after-tax income by approximately 3.5%. The left-leaning Center for American Progress has estimated a higher $2,500 annual cost to middle-class Americans based on 10% tariffs and 60% on Chinese goods, which they project would go up to $3,900 if Trump levied 20% tariffs on most imported goods—which is still below the rate he proposed Monday.

Crucial Quote

“No study of the Trump tariffs has found any evidence that U.S. tariffs result in lower prices for U.S. importers,” economists at PIIE wrote in a May analysis. “On the contrary, study after study has shown that U.S. tariffs levied since 2017 have instead been fully ‘passed through’ to American buyers.”

What We Don’t Know

While Trump only targeted Canada, Mexico and China in his Monday announcement, his tariff plan could eventually extend to other countries as well, as he’s previously floated. It also remains to be seen what the full impact of Trump’s tariffs will be: Economists have based their projections on Trump suggesting he’d impose a 10% tariff rate for countries outside of China, but the president-elect’s announcement Monday suggests he’s willing to go even higher.

Chief Critic

“President Trump successfully imposed tariffs on China in his first term AND cut taxes for hardworking Americans here at home—and he will do it again in his second term,” Trump spokesperson Karoline Leavitt told Forbes in a statement before the election when asked about the criticism against Trump’s tariff plan, claiming the ex-president’s “plan will result in millions of jobs and hundreds of billions of dollars returning home from China to America.” The Trump transition team has not yet responded to a request for comment on criticism of Trump’s plan targeting Canada, Mexico and China specifically.

What Goods Will Trump’s Tariffs Affect?

While only targeting goods from Canada, Mexico and China, Trump’s initial tariff plans will still affect a broad range of imports. Canada is the U.S.’s biggest provider of crude oil, with the Canadian government pointing out Monday the country provided 60% of the U.S.’s supply last year. The northern country also provides transportation equipment, metals, chemicals and processed foods to the U.S., according to data reported by the International Trade Administration. Mexico is the U.S.’s biggest trade partner in terms of imports, according to the ITA, with the U.S. importing goods including computer products, other electronics, electrical equipment, appliances, machinery and oil. The country is also the biggest provider of cars and car parts to the U.S., CNN reports, citing the Commerce Department. China is responsible for a wide range of U.S. imports, with the ITA citing computer and electronic products, electrical equipment, appliances, machinery, fabricated metal products (like bolts and screws, cutlery, cans, car parts and other metal items) and other miscellaneous manufactured goods as the biggest imports going to the U.S.

What To Watch For

It remains to be seen if any of Trump’s tariff hikes would be coupled with tax cuts that would lessen the impact on American consumers, and Trump has previously floated the idea of replacing income taxes with tariffs, which economists have criticized as being insufficient to cover the funds raised through income taxes. Trump would likely be able to increase tariffs unilaterally without Congress, the Wall Street Journal notes, arguing while the ex-president could encounter some difficulties in imposing a 10% tariff rate across the board, he could take a more piecemeal approach that would alleviate logistical concerns. It’s also unclear how other countries will respond to any Trump tariff increases and if they could retaliate against the U.S. with tariffs of their own, as China did after Trump imposed tariffs against it during his first term. PIIE fellow and former Obama administration staffer Maury Obstfeld told CNN before the election that the conflict “could have a destabilizing effect on financial markets,” predicting “China would retaliate massively” and “other trading partners would be unlikely to take it laying down.”

Contra

While Harris attacked Trump’s tariff proposal on the campaign trail, the Biden administration has largely kept Trump-era tariffs in place, and announced some new tariffs against Chinese imports in May that affect $18 billion worth of goods, blaming “China’s unfair trade practices.” (Trump’s proposed blanket tariffs on China would affect more than $400 billion worth of imports.) The continued Trump-era tariffs on Chinese imports increased the inflation rate by approximately 0.3%, PIIE found in a 2022 analysis. Getting rid of tariffs has been a dicey political issue: The Washington Post noted in 2022 that while some in the Biden administration had encouraged cutting tariffs, including Treasury Secretary Janet Yellen, labor unions have also pressured President Joe Biden not to lift the tariffs, often to boost U.S. competitors. Rust Belt Sens. Bob Casey, D-Penn, and Sherrod Brown, D-Ohio, urged Biden to keep tariffs in place in a 2023 letter, arguing getting rid of them would “undermine American steel and aluminum producers.” “Lowering tariffs would be a benefit to consumers. But there is no political appetite to turn these things back at the moment,” Obstfeld told CNN.

Key Background

Trump has long pushed tariffs as a cornerstone of his trade policy, first hiking tariffs in 2018 that sparked a trade war with China before the two sides reached a trade agreement in December 2019. The ex-president’s move resulted in a sixfold increase in the tariffs on Chinese goods as compared with prior to 2018, PIIE noted, reaching a high of 21% in January 2020, which is still far below Trump’s 2024 proposal. Trump’s initial tariffs—on such goods as washing machines, solar panels, steel and aluminum—applied to other countries besides China as well, but the impact was lower, with PIIE reporting tariffs on other countries increased by 2.2% to 3% on average between 2018 and 2022.