Consumers, Companies Brace For Trump Tariff Fallout

Donald Trump’s tariff wars are sparking concern that he may further stoke inflation in the coming months. But the president may already be putting pressure on prices even though he’s barely fired a shot.

Trump’s only major move so far has been to layer another 10 percent tariff on top of all Chinese goods entering the U.S. But he’s also laid out a slew of other big potential targets: steel and aluminum, copper, autos and pharmaceuticals on top of all imports from Canada, Mexico and the European Union, and — potentially — tit-for-tat duties on every country in the world.

Now, there are already signs of trade-related effects. Forty-three percent of Americans said in a recent survey that they were seeing the tariff threats feed into higher prices. Key benchmarks of consumer sentiment this month showed expectations for future inflation have ticked up. And the stocks of some key companies like Walmart have taken a hit in recent weeks on expectations of higher import costs.

“There’s some anecdotal evidence that firms are already starting to pull through prices,” said Tim Duy, chief economist at SGH Macro Advisers. “That could start to bite here in the next couple of months.”

The Commerce Department on Friday will release inflation data from January. While it’s not yet expected to show much of a tariff hit, inflation has remained stubbornly above the Federal Reserve’s 2 percent target, and further price increases could start to be reflected in the numbers soon.

The fallout from Trump’s tariff policies could be pivotal to the success of his presidency. The surge in inflation under President Joe Biden was a major factor in Trump’s victory in November, as he pledged that, “Starting on Day 1, we will end inflation and make America affordable again.” But consumers are growing more pessimistic about the economy as they absorb the prospect for further increases in their cost of living, even as the unemployment rate remains low and growth has been steady.

For now, the gloomy outlook is much more common among Democrats in recent polling. But the potential problems extend beyond that.

Widespread tariff-related price increases would also muddy the picture for Fed Chair Jerome Powell as he tries to parse the extent to which costs are rising due to longer-term trends — which would call for high borrowing costs — versus simply one-time price adjustments.

Higher costs for businesses could also slow economic activity.

Trump’s nominee for his chief economist, Stephen Miran, on Thursday offered a rosier outlook. He pointed to “a period of extraordinary economic transformation” in the 1800s when tariffs were much higher, as well as rapid growth in the wake of World War II when “the tariff rate on dutiable imports was in excess of 30 percent.”

“Now, I don't want to claim that correlation is causation, but nevertheless, you know the historical record is very clear that the American economic story has seen periods of high tariff rates coincide with extraordinary economic success,” Miran said at his confirmation hearing before the Senate Banking Committee.

The scope, size and duration of tariffs proposed by Trump are highly unclear, which makes it hard to predict precisely how they might affect households, businesses and the economy more broadly.

A key piece of the puzzle will be observing the effect from the new tariffs on China.

“During the tariff waves in the first Trump term, we saw import prices rise almost immediately after the tariffs went into effect,” said Amit Khandelwal, a professor at Yale University. “It is harder to know if [and] how long it will take for those border price increases to be reflected in retail prices that consumers see.”

Tariffs on durable goods can take a few months before they start showing up in pricing because retailers already have existing inventory, while prices on items shipped more directly to consumers might jump immediately.

There may be other mitigating factors. Both Miran and Treasury Secretary Scott Bessent have pointed to the fact that U.S. tariffs often lead to a stronger dollar, which increases Americans’ purchasing power and helps offset higher import costs.

Also, some of the cost burden can be absorbed by the foreign exporter, as occurred with steel tariffs during Trump’s first term. But for the most part, studies have found that the costs of his tariffs more broadly were borne by domestic businesses and consumers.

A recent study by Yale’s Budget Lab estimated the potential price impact of 25 percent tariffs on automotive, pharmaceutical and semiconductor imports. It found prices under the Personal Consumption Expenditures index — the Fed’s preferred measure of inflation — would rise 0.5 percent if other countries don’t retaliate and 0.7 percent if they do.

That comes out roughly to an annual $900-$1,100 hit to consumers, even factoring in projected movements in the value of the dollar.

Ernie Tedeschi, director of economics at the Budget Lab and a former White House economist under Biden, said that’s a short-term estimate of how much prices would rise within, say, the next year. Eventually, consumers might shift which products they buy or companies may shift supply chains, he said.

Longer-term, he added, the effect is less clear.

“We could actually end up with lower prices because we have a weaker economy,” Tedeschi said.