The Trump administration announced tariffs on three major U.S. trading partners Feb. 1, roiling stock markets across the globe and leaving American consumers with questions about how the measures would impact prices. While the administration later said it would delay the 25% tariffs on Mexico and Canada for one month, the 10% tariff on Chinese goods took effect Tuesday.
According to the executive order, the tariffs are intended to pressure these countries into stopping the flow of migrants and the deadly drug fentanyl across U.S. borders. The Mexican and Canadian governments offered concessions to shore up their borders with the U.S., while China responded by imposing retaliatory tariffs and stating it would open an antitrust investigation against Google.
It remains to be seen if the Canadian and Mexican tariffs will take effect as planned. While 25% tariffs would not be the highest in American history, they would impact nearly 5% of our total GDP, which is historically unprecedented. Together with the 10% tariff on China, the affected goods encompass a wide array of necessities, including housing, fuel, cars, and food.
So, how would these tariffs impact the cost of living for Americans? Fordham economist Giacomo Santangelo offered his insight.
Fordham Now: Do tariffs raise prices for consumers?
Giacomo Santangelo: When businesses face elevated import costs, they typically pass these increases to consumers through increased prices for goods and services.
This phenomenon has been observed in every sector on which tariffs have been placed, including electronics, automobiles, and everyday consumer products, since time immemorial. The recent tariffs proposed by the Trump administration are anticipated to follow this trend, potentially resulting in significant increases in the cost of living for American consumers, as stated by President Trump this past weekend.
FN: To put it in perspective, how significant are the proposed 25% tariffs on Mexican and Canadian goods? Is that pretty steep?
GS: The introduction of a 25% tariff on goods imported from Mexico and Canada would have substantial implications. Such a considerable tariff would disrupt supply chains, especially in industries with heavy reliance on cross-border trade, such as automotive and manufacturing. The economic impact is likely to be felt across all three economies, with potential retaliatory measures further complicating the situation.
FN: Could the negative impacts of tariffs be offset by their benefits, like a better job market, in your opinion?
GS: While the U.S. manufacturing sector may experience some perceived short-term gains in employment due to increased competitiveness of domestic production, the long-term benefits remain uncertain.
Many of the Mexican and Canadian goods taxed do not have U.S. counterparts to replace them. Also, elevated production costs resulting from tariffs on imported inputs generally overshadow these temporary gains. In short, the U.S. consumers will end up paying more of a cost than U.S. industries will benefit.
FN: What do you make of the argument that the tariffs Trump imposed during his first term did not lead to drastic inflation and therefore we shouldn’t worry this time?
GS: The tariffs under Trump’s first term were not as inflationary as these proposed tariffs because they were more limited in scope.
The current tariffs are broader and more substantial, targeting a wider range of goods and potentially having a more pronounced impact on prices. Furthermore, the economic context has evolved, with the U.S. emerging from a period of high inflation, resulting in heightened sensitivity to increases in the cost of living. Therefore, caution is warranted regarding the potential inflationary effects of these new tariffs, especially given the president’s recent comments that tariffs on the EU are forthcoming.
