President-elect Trump campaigned on using tariffs as a tool to secure more favorable international trade terms and bring in tax revenue, but they could impact the prices paid by consumers for imported products.
Among the policies Trump has floated include an across-the-board tariff of 10% or 20% on all goods imported into the U.S., as well as a larger tariff of 60% on goods imported from China. He also said he would impose a 25% tariff on goods from Canada and Mexico. At a press conference on Monday, Trump and one of his nominees to a key Cabinet post signaled they want to use tariffs to secure reciprocal trade terms with other countries.
Commerce Secretary-designate Howard Lutnick spoke at a press conference on Monday with President-elect Trump and SoftBank CEO Masayoshi Son, who announced the Japan-based firm will invest $100 billion in the U.S. Lutnick responded to a press question about the incoming administration's tariff plans and explained that Trump "has a very clear agenda for tariffs, and I think reciprocity is something that is going to be a key topic for us. How you treat us is how you should expect to be treated."
Trump weighed in and said, "Tariffs – properly used, which we will do – and being reciprocal with other nations, it will make our country rich… I always say, to me, tariff is the most beautiful word in the dictionary."
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The president-elect also pushed back on concerns the tariffs could raise prices for consumers based on the experience of his first term, saying, "I didn't have any inflation and I had massive tariffs on a lot of things."
Uncertainty over how the tariffs will be implemented and the impact of the import taxes on consumers is likely to persist until the new administration takes office on Jan. 20, 2025, and begins to move forward with its preferred policies. Based on some of Trump's policy proposals from the presidential campaign, trade experts think there could be a significant price impact for consumers.
"Depending on the nature and the rate and how it's structured, it could be pretty substantial," Clark Packard, a research fellow at the Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies, told FOX Business about the impact of tariffs on consumer prices. "He talked on the campaign trail about a 10% to 20% tariff on all imports, and then a special duty of like 60% on imports from China. If that were to go into effect, you know it would certainly raise consumer prices."
"I've seen a study showing that the price of a laptop, for example, would increase by about $350 and a smartphone by about $200," Packard said. "That assumes full pass through of the tariff cost to a retail buyer, but a lot of the best economic research shows that about 90% of the cost of a tariff gets pushed back to consumers."
Dr. Madhav Durbha, group VP of CPG and manufacturing at RELEX, told FOX Business, "Items like avocados, mangoes, and other fresh produce heavily sourced from Mexico are highly vulnerable to tariffs. Geographic and environmental constraints make it difficult to shift production, and these tariffs would translate directly into higher prices for consumers at grocery stores."
Durbha added that the U.S. imports pharmaceutical ingredients used in producing everyday medications from China and that tariffs on such imports "could increase drug costs for consumers and disrupt supply chains, creating ripple effects across the health care industry."
He said that while many apparel and footwear brands have adopted the "China plus one" strategy of diversifying production to countries like Vietnam and Cambodia, tariffs on China could potentially increase costs on those goods for consumers.
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Durbha added that a similar dynamic has played out with consumer electronics, like laptops and smartphones, which could be subject to price hikes or availability delays despite more production moving from China to countries like India and Vietnam.
Packard also noted that imposing tariffs to tax imported goods would also have an impact on American manufacturers and exporters, because foreign countries are likely to impose retaliatory tariffs on U.S. exports in response.
He explained that "40% to 50% of all imports are intermediate inputs that American firms use to make their products more globally competitive, and so when you start raising the price of inputs that American firms are buying abroad, you're going to make the finished product less competitive in global markets."
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"When you impose a tariff, you're going to see retaliation from foreign governments," Packard explained. "So not only are you a producer in the U.S. and your prices have increased because the goods you need have increased in price, you're going to see higher tariff barriers when you go to export the product as well."
