How US Shoppers Face Rising Costs: Tariffs Expected to Intensify Inflation Woes

The election of Donald Trump as President might have been influenced by American dissatisfaction with rising prices, yet Trump’s recent actions suggest he could be inadvertently fueling further inflation before officially assuming office in January.

This past Monday, Trump declared his intention to implement extensive new tariffs on imports from Canada, Mexico, and China as a means to combat illegal immigration and drug trafficking. He stated on Truth Social that all goods from Canada and Mexico would be subject to a 25% tariff, and those from China would incur an additional 10% fee.

“A lot of people fail to realize that imposing tariffs actually leads to higher prices,” explained Dana Peterson, chief economist at The Conference Board. “It’s quite typical for individuals to vote on issues that don’t directly relate to their financial wellbeing,” she added.

According to Ernie Tedeschi, director of economics at the Yale Budget Lab, the tariffs Trump announced could diminish the purchasing power of the typical American family by $1,200 when adjusted for 2023 dollars.

While it’s possible for consumers to adjust their buying habits—opting for domestically produced goods over imported ones, for instance—not all product categories offer this flexibility, Tedeschi mentioned.

Agricultural products are one such category where options are limited. The United States is the largest buyer of Mexican agricultural exports, purchasing about 92% of these goods, as per the U.S. Department of Agriculture. While consumers might postpone buying non-essential items like electronics or clothing if prices rise, they can’t as easily forego fresh food. According to Tedeschi, adjusting to tariffs on these items will be challenging in the short term as retailers look for alternative suppliers.

Moreover, Tedeschi pointed out that the overall inflation forecast doesn’t even account for the fact that a significant portion of imports are raw materials, such as Canadian lumber and oil. “These materials are used in manufacturing processes and can actually lead to more immediate inflationary effects,” he said.

Importers are likely to pass on the cost increases from tariffs to consumers by raising prices, noted Jennifer Lee, senior economist and managing director at BMO Capital Markets. “This will likely lead to domestic competitors also raising their prices under the guise that ‘everyone else is doing it,’ narrowing consumers’ choices further,” she explained.

If Americans attempt to purchase goods now to avoid future price increases, this could temporarily push inflation higher as demand surges, Lee remarked. “This anticipatory buying behavior was also observed before the port strike,” she recalled.

While consumers can stock up on items like toothpaste, companies can’t do the same with their supplies, according to Peterson. “Business inventory planning is done months in advance,” she stated.

The Influence of Inflation on Interest Rates

Peterson suggests that the threat of tariffs might be merely a bargaining chip. It’s also crucial to remember that many businesses could seek exceptions to these tariffs, especially if they are involved in sectors deemed vital for national security.

However, for voters who expressed their concerns about inflation through their electoral choices, the timing of these tariff announcements is particularly significant, Lee observed. “This all occurs at a moment when inflation seems more persistent,” she said. “The last time Fed Chair Powell spoke, he appeared slightly less accommodating. With the prospect of sustained higher inflation, the Federal Reserve may be less inclined to loosen monetary policy as quickly as it has in the past.”