Now, economists are decrying the effects of tariffs enacted under President Donald Trump’s watch. According to Bloomberg News, they expect the squeeze on consumers will begin to be felt in earnest by summer. Tariffs are taxation on imports and have previously been used specifically on aluminum, steel, automobiles and car parts. To make matters worse, goods we import from China are actually hit with a mind-blowing 145% tariff. The cumulative effect of these measures has been to establish a “de facto embargo” on Chinese products, in the words of some experts.
The strange and extremely harmful trade war we’re all living through is escalating further, thanks in large part to these tariffs. Look for significantly increased consumer prices beginning in May. Mark Zandi, an economist, commented on the situation, stating, “I suspect by May — certainly by June, July — the inflation statistics will look pretty ugly.” And he’s not the only economist feeling this way. They think we haven’t seen the full bite from the tariffs yet, with the effects starting to be realized over the next few months.
The continued uncertainty about ultimate scope of Trump’s tariff policy continues to be an economists nightmare. All U.S. trading partners need to pay a 10% universal tariff on everything they sell to us in imports. Their neighbors Canada, China and Mexico are hit with even bigger levies. Such unequal treatment may result in dramatic shifts in prices in different sectors.
Preston Caldwell, a fellow economist at Bloomberg, added that firms likely don’t want to start raising prices now. He stated, “Any company that kind of sticks its neck out first and increases prices will probably be subject to political boycotts and unfavorable attention.” This risk-averse approach pushes a price increase further down the supply chain. While these changes are first led by producers, they’re then capitalized at retail and ultimately felt by consumers.
Food consumption prices are expected to be the first big jump ahead in major categories. Caldwell noted, “I think it’ll take some time for the inflationary shock to work its way into the system.” If other countries try to hit back or foreign demand doesn’t materialize, Zandi said prices for discretionary service sectors such as travel and tourism would plummet. For farmers, the risk of lower prices is no joke.
Then in March, a shocking plot twist. Perhaps even more surprisingly, the fear of a global trade war helped raise inflation rates faster than expected. Zandi noted that this “darkly ironic” trend helped bring prices down in certain regions. Visits from foreigners to the United States, particularly from our northern neighbor, Canada, fell off a cliff. That decline is most obvious in hotel prices, which have dropped significantly, as well as lower airline fares.
Even with these counteracting complexities, economists are still predicting further increases in the consumer price index. For instance, Capital Economics now expects inflation to peak at about 4% in 2025, increasing its March forecast of 2.4%. This path highlights the ongoing squeeze on consumer prices as the full impact of the tariffs continues to develop.
As private firms feel their way through these choppy waters, they’re going to be very risk averse. We learned from Thomas Ryan that raising costs do not instantly roll through the entire supply chain. For companies, the response has been staggered, so consumers won’t see their pricing positively impacted right away. They need to prepare for significant impacts this summer.
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