Even as the U.S. runs headfirst into a trade war with its largest economic partners, the Trump administration says the average consumer won’t be hurt. They’re likely to be wrong.
“Tariffs are about making America rich again and making America great again, and it is happening and it will happen rather quickly,” President Donald Trump said Tuesday night while addressing Congress. “There will be a little disturbance, but we are OK with that. It won’t be much.”
With markets tumbling and the S&P 500 erasing the gains it made since Trump’s election in November, Treasury Secretary Scott Bessent, argued earlier Tuesday that this week’s tariffs are just a bump in the road. The administration has now slapped 25% duties on imports from Mexico and most imports from Canada, along with 20% levies on Chinese goods.
“Wall Street can continue to do fine, but we have a focus on small business and consumers,” Bessent said on Fox News, when asked about the markets’ downward spiral.
But trade groups, retailers, and experts say the tariffs won’t just hurt Wall Street bankers.
The U.S. Chamber of Commerce said tariffs will only “increase the economic pain” being felt by Americans, warning that some companies it represents could be forced out of business. The head of New York’s Federal Reserve Bank said tariffs are likely to lead to higher inflation if they persist.
“Where tariffs are very predictable is that it’s going to hurt consumers,” said Jack Zhang, a political science professor who runs the University of Kansas’ Trade War Lab.
Major companies including Best Buy, Acer, and Target are weighing price hikes. A handful, such as Chipotle, have said they will attempt to absorb the entirety of the costs to keep prices manageable for consumers. But that’s not sustainable for many companies in the long run — especially if more tariffs are issued.
Vehicles from major automakers such as General Motors and Ford Motor Co. could cost between $4,000 and $10,000 more for gas-powered models, or as much as $12,000 more for an electric vehicle with parts from Mexico and Canada. Profit margins of the Detroit Three automakers will be wiped out without price hikes, according to Barclays.
And despite Trump’s claims that farmers “are going to have a field day right now,” they’re also set to be hurt by his trade war. Produce, including avocados and strawberries, is set to become more expensive because of the duties on Mexico.
China, which the Department of Agriculture expects to be the third-largest market for U.S. agricultural products, has issued tariffs on goods including chicken, soybeans, and corn. During the trade war in Trump’s first term, the federal government spent more than $60 billion to bail out farmers hurt by his tariffs on Chinese imports.
In a statement Tuesday, the American Farm Bureau Federation said it was concerned about the tariffs’ impacts.
“Adding even more costs and reducing markets for American agricultural goods could create an economic burden some farmers may not be able to bear,” the group warned.
Tariffs essentially function as a regressive tax, meaning they create a larger burden on low-income taxpayers than wealthier people who can afford to pay those costs. “It’s a rich man’s war, poor man’s fight,” Zhang said.
The Peterson Institute for International Economics estimated that Trump’s original tariff plan, which factored in 10% duties on China, would cost the typical U.S. household more than $1,200 each year. The top 1% of households would be impacted the least, while the poorest Americans were expected to be the hardest hit.
“The reality of it is poor people or less highly paid people consume 100% of their paychecks,” Gary Cohn, Trump’s former chief economic advisor, said at the Bloomberg Invest conference on Tuesday. “Wealthier people consume a very small percentage of their paychecks. The things that are being tariffed are things everyday people buy.”
The longer the tariffs are active, the greater the impact they will have on companies and economies. The president is also moving to issue more tariffs, which will exacerbate their effects.
Trump has teased duties on foreign aluminum, steel, copper, cars, semiconductors, pharmaceuticals, timber, lumber, and agricultural products. He’s also discussed hitting the European Union with 25% tariffs and issuing so-called reciprocal tariffs.
Although the official reasoning from the White House is that this first round of tariffs — the duties on Canada, Mexico, and China — is to force action against fentanyl smuggling, Trump is also using trade policy to convince companies to make products in the U.S. For many companies, that would likely be a years-long effort.
“Just because a [politician] decides that you need to [reorganize] your supply chains, and even if they offer money, it actually is much harder than everyone thinks it is,” said John Denton, the secretary general of the International Chamber of Commerce. “It’s taken years to develop those valuable supply chains and the interconnectedness. ... The idea that globalization is dead is kind of wishful thinking for some. The reality is it’s just going to change.”