President-elect Donald Trump announced earlier in the week that he wants to impose a 25% tariff on imports from Mexico and Canada—the United States’ two biggest trade partners—and a 10% tariff on goods from China. This shouldn’t surprise anyone. He literally called himself “Tariff Man,” and it’s one of the policies that he ran on. While he’s said he wants to use tariffs as a negotiating tactic to force Canada and Mexico to do something about immigration, the economic impact could be significant in the mean time—driving up costs for consumers and potentially harming major American businesses.
While Black Friday 2024 won’t be harmed, if the tariffs become reality, shoppers could be in for a major shock over the year to come. This is because there’s a common misconception—which Trump himself even promoted—that tariffs are paid by foreign countries. Instead, they are actually paid by American companies, and by consumers in many cases. The higher tariffs go, the higher prices for those goods rise.
What is a tariff and how does it work?
- The United States government imposes a tariff on imported goods, which is a percentage of the price an importer—the buyer—pays to a foreign company. Under Trump’s current proposal, that’s a 25% tax on anything from Mexico or Canada and a 10% tax on goods coming from China.
- The buyer—from mega corporations like Walmart down to local hardware stores—pays that tariff to the United States government when the imports cross the border.
- That extra cost has to get covered one way or another, either by coming out of the importing company’s margins or by being passed along to consumers in the form of higher prices. If the tariffs are too high, there may be no choice other than raising prices.
In practice, it will be American companies that have to pay tariffs—not China, Mexico, or Canada—with potentially dire effects on consumers.
For instance, John David Rainey, the CFO of Walmart—America’s biggest retailer—has said very clearly that new tariffs could force the company to raise prices. He told CNBC that while “we never want to raise prices,” and the company’s “model is everyday low prices,” there “probably will be cases where prices go up for consumers.”
The reason for this is simple. If Walmart has to pay more to import goods from the United States’ biggest trade partners—China, Mexico, and Canada—then regular people will also have to pay more for those same goods when they get to the cash register. Prices will go up as tariffs go up.
National Retail Federation CEO Matthew Shay called the sorts of tariffs Trump proposed during the campaign “a tax on American families” that “will drive inflation and price increases and will result in job losses.”
The Trump team’s hope is that these tariffs will encourage companies to buy American instead, but in many cases, that may not be possible. Either the goods are simply not made in America, or it’s more expensive to manufacture them in the United States. Of course, manufacturing capacity could expand or supply chains shift away from the targeted countries, but that takes time, and in the interim, consumers will likely pay more.
It also remains to be seen whether the tariffs will force any action on immigration by Mexico or Canada. If American businesses successfully pivot away from those countries, it could bring them to the negotiating table on migration policy. But, if American consumers primarily foot the bill, it might not succeed, or could take a long time to yield results.
If Trump does issue an executive order implementing the tariffs, American consumers need to be prepared for higher prices, and Wall Street could see shrinking margins at major retailers. The one thing that’s absolutely for certain is it will be Americans that pay for tariffs—not China, Mexico, or Canada.