Steve Madden shoe boxes are displayed Nov. 11 at a DSW store Novato, California. In response to President-elect Donald Trump’s proposed tariffs, shoemaker Steve Madden is planning to import fewer goods from China and look to move production to countries like Vietnam, Cambodia, Brazil and Mexico. Economists say Trump’s proposed tariffs would raise prices after he promised to bring them down for groceries, rent and other basics. (Photo by Justin Sullivan/Getty Images)
President-elect Donald Trump has promised to bring down prices on groceries, rent and other basic necessities of life.
U.S. presidents don’t typically have direct control over how much any of those things cost, but their policies can have an effect.
In Trump’s case, the proposals that economists think could have significant influence are tariffs, or taxes on imports.
Why Trump tariffs could be bad for prices
On Monday, Trump threatened to impose new tariffs on Mexico, Canada and China – the United States’ three biggest trading partners – as soon as he takes office, on Jan. 20.
The Republican said the new rate for goods from Canada and Mexico would be 25% as a pressure campaign to curb the illegal drug trade and immigration. Trump proposed an additional 10% on China after previously pledging a 60% tariff on products from there. He has also proposed anywhere from 10 to 20% tariffs on other imports.
Trump says his plans would bring manufacturing jobs back to the U.S. But economic experts say Trump’s proposals will hurt American families’ wallets with more expensive cars, appliances, and technology.
Wayne Winegarden, senior fellow in economics at the right-leaning Pacific Research Institute, said additional tariffs will raise the price of not only foreign goods, but those produced domestically as well.
“We import steel that goes into production of cars, so cars will be more expensive,” Winegarden said. “You may see prices going up.”
Winegarden said he sees the tariffs as a broad-based consumption tax that will be bad for the economy.
“How bad just depends on how high the rates are and there will be secondary effects in terms of how other countries respond as well,” he said. “Even if they don’t respond — I think that’s important for people to know, even if nobody raises their tariff in response to us — we’re still making U.S. families worse off.”
Under a scenario with a broad 10% tariff and a 60% China tariff, the effect on households, even if there is no tariff retaliation, would be an additional $2,421 per household in 2023 dollars according to 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 from a peak of 9.1% in June 2022.
In October, 62% of registered voters said the economy is in poor condition.
Economists say, though, it’s unlikely that prices will broadly come down to where they were during Trump’s first term. If prices came down that much, it would likely be the result of a weak 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 slow through the end of the year and will pick back up early next year.
Saidel-Baker said she had this expectation before considering Trump policies because the money supply is increasing, leading to a faster pace of transactions. But tariffs are one of her main concerns about how Trump’s policies will affect inflation next year. She said goods inflation is under control at the moment while the services sector is harder hit by inflation as the result of a tighter labor market. Under the Trump administration, goods inflation could start picking up again.
“Tariffs could cause goods to catch back up. But we have long-term demographic problems that are going to keep the labor market tight. I don’t see service inflation getting materially better, especially if we do things like these mass deportations that’s going to cut from 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 boosted jobs in the steel and washing machine industries, the effect was a fall in the long run GDP by 0.2% and a loss in employment of 142,000 full-time jobs, the Tax Foundation, a tax policy think tank, estimated.
“We already have evidence of what his tariffs are going to do from his first term. And those aren’t positive. It did not achieve what he says they’re going to achieve,” Winegarden said.
Marshal Cohen, chief industry analyst at the NPD Group, a market research company, said a lot of companies have already moved their production away from China as a result of Trump’s first term tariffs. Steve Madden CEO Edward Rosenfeld explained in an earnings call that the company is implementing a plan to reduce its reliance on China, where more than 70% of its imports are from.
Cohen said that despite this shift, certain goods could be more affected by tariffs, such as technology, cars, appliances, and the toy business that are based in or have many ties to China.
How companies will respond
Companies such as Columbia Sportswear, AutoZone, Stanley Black & Decker have said that they will raise prices in anticipation of tariffs.
“If we get tariffs, we will pass those tariff costs back to the consumer,” Philip Daniele, CEO of AutoZone, said in an earnings call.
Isabella Weber, associate professor of economics at the University of Massachusetts Amherst, who recently co-authored a paper on companies’ pricing strategies, said how much companies are comfortable raising prices depends on how much sales fall.
“We have seen that companies were willing to increase prices even when it came at reductions in the volume sold. So, demand falling is not necessarily a reason for companies to not raise prices,” she said. “However, there comes a point of course at which further price increases no longer improve the bottom line if sales fall too much. In some segments, especially the ones where low-income households are important buyers like for example fast food, that point could have been reached.”