On November 11, shoe boxes from Steve Madden are on display at a DSW store in Novato, California. Shoemaker Steve Madden plans to move production to nations including Vietnam, Cambodia, Brazil, and Mexico and import less items from China in reaction to President-elect Donald Trump’s proposed tariffs.
Despite his pledge to reduce prices for groceries, rent, and other needs, economists predict that Trump’s proposed tariffs would result in higher costs.
Donald Trump, the incoming president, has pledged to lower the cost of rent, groceries, and other essentials.
Although they rarely do, U.S. presidents can influence these prices through their policies.
Economists think that Trump’s policies, which include tariffs or import levies, might have a big effect.
Why Trump tariffs could be bad for prices
Trump said Monday that as soon as he takes office on January 20, he will put new tariffs on the US’s top three trading partners: China, Canada, and Mexico.
The Republican said that as part of a pressure campaign to curb immigration and the illegal drug trade, the new tariff rate for goods from Canada and Mexico will be 25%.
After first vowing to impose a 60% tariff on Chinese goods, Trump now suggests an additional 10% levy. In addition, he has suggested imposing 10–20% tariffs on other goods.
Trump says his policies will restore American manufacturing jobs. Economic analysts caution that Trump’s policies will put American families at a financial disadvantage by raising the price of technology, appliances, and automobiles.
More tariffs will drive up the cost of local and foreign goods, according to Wayne Winegarden, a senior fellow in economics at the right-leaning Pacific Research Institute.
According to Winegarden, cars will cost more since we import the steel used in their manufacture. Prices can be rising.
According to Winegarden, the tariffs would hurt the economy because they are a broad-based consumer tax.
According to him, the severity simply depends on the rates, and there will also be repercussions in terms of how other nations react.
Even if they don’t reply, I believe it’s crucial for people to understand that we’re still hurting American households even if no one raises their tariff in response.
Even in the absence of tariff retaliation, a broad 10% duty and a 60% China tariff would cost an extra $2,421 per household in 2023 dollars, according to the neutral research center Yale University’s Budget Lab.
What about inflation?
Despite the fact that inflation has largely decreased since peaking at 9.1% in June 2022, many voters expressed concerns about the state of the economy during the presidential election.
The economy is in bad shape, according to 62% of registered voters in October.
But according to experts, prices won’t drop all that much to where they were during Trump’s first term. A sluggish economy was probably the cause of the sharp drop in pricing.
According to economist Lauren Saidel-Baker of ITR Economics, a neutral economic research and consulting firm with headquarters in New Hampshire, inflation will continue to decline until the year’s end before increasing in the first few months of the following year.
Saidel-Baker claimed that because the money supply is growing and transactions are happening more quickly, she had this anticipation prior to thinking about Trump’s policies. But one of her main worries about how Trump’s policies will affect inflation in the upcoming year is tariffs.
Although goods inflation is now under control, she said that because of a tighter labor market, the services sector is more susceptible to it. The Trump administration may see a return of goods inflation.
Goods may catch up as a result of tariffs. However, the labor market will remain tight due to our long-term demographic issues. “If we do things like mass deportations, which will reduce the working-age population,” Saidel-Baker stated, “I don’t see service inflation improving materially.”
What we know from past Trump tariffs
Trump levied duties on a range of goods during his first term, including washing machines, solar panels, and steel and aluminum. China was one of the nations that retaliated with tariffs.
According to tax policy think tank the Tax Foundation, Trump’s tariffs led to the loss of 142,000 full-time jobs and a 0.2% decline in long-term GDP, despite creating jobs in the steel and washing machine industries.
Evidence of what his tariffs will accomplish during his first term is already available. Furthermore, they are not favorable. According to Winegarden, it did not accomplish what he had promised.
Many businesses have already shifted manufacturing away from China due to Trump’s first-term tariffs, according to Marshal Cohen, chief industry analyst at market research firm the NPD Group.
In an earnings call, Steve Madden CEO Edward Rosenfeld clarified that the business is putting a plan in place to lessen its dependency on China, which supplies over 70% of its imports.
Despite this change, Cohen thinks that some products that are based in or have close ties to China—like technology, automobiles, appliances, and the toy industry—will be more affected by tariffs.
How companies will respond
In anticipation of tariffs, companies such as Stanley Black & Decker, AutoZone, and Columbia Sportswear have said that they will increase their pricing.
In an earnings call, Philip Daniele, CEO of AutoZone, stated that if tariffs are imposed, the price of the tariffs will be passed on to the customer.
“How much a company is willing to raise prices depends on how much sales fall,” explained Isabella Weber, an associate professor of economics at the University of Massachusetts Amherst who recently co-authored a paper on corporations’ pricing tactics.
We have observed that businesses were prepared to increase prices even if doing so resulted in a decrease in sales volume. Therefore, she clarified, declining demand is not necessarily an excuse for companies to hold off on raising prices. Further price hikes won’t help the bottom line, though, if sales decline too much.
That may have been the case in some markets, especially ones like fast food where low-income households are significant consumers.
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