Consumers will start feeling the impacts of President Donald Trump’s tariffs soon.
Trump is set to unveil “reciprocal tariffs” today, a 10% levy is in effect on goods from China, and while his 25% levies on Mexico and Canada were delayed until next month, they would also have sweeping economic impacts.
Many Americans are left wondering: Who pays the price? Here’s a rundown on the history and impacts of recent tariffs, Trump’s proposals and what to expect when it comes to increased costs.
And there will be impacts: Nearly all economists agree tariffs are a tax on consumers. If you’re wondering how to prepare for the financial implications, we’ve got you covered on that, too.
HOW TARIFFS ACTUALLY WORK
To see the direct impact of tariffs on prices, look no further than washing machines.
In 2018, President Donald Trump enacted tariffs ranging from 20% to 50% on imported washing machines. His administration purported that the tariffs would protect American industry—and such a move did add around 1,800 jobs domestically, according to a study in the American Economic Review.
But each of those jobs came with an average annual cost to consumers of over $815,000.
That’s because the report found that the tariffs raised the price of washing machines and dryers (which were not subject to such a tax, but are usually bundled with washers) by about $86 and $92 per unit, respectively. In total, the tariffs cost consumers just over $1.5 billion annually.
And it wasn’t just the foreign producers who upped prices: Domestic manufacturers like Whirlpool and Maytag raised their prices by nearly the same amount once their competitors were charging more, says Felix Tintelnot, associate professor of economics at Duke University and one of the study’s authors. And he said the price of dryers went up alongside washers to likely spread out the additional cost producers were facing.
Tintelnot said while tariffs can increase the number of jobs in specific sectors, they won’t affect aggregate employment because the country is already near full employment (unemployment is at 4%).
“You can get [a] reallocation of employment towards industries that faced higher imports before, but that’s going to come at the loss of employment in other industries, especially export intensive industries,” he tells Forbes. “We are basically trading off cost to consumers with the benefits for producers in the import competing sectors.”
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BRIEF HISTORY OF TARIFFS
Tariffs have been a trade weapon in the United States’ arsenal since the country’s very beginning. One of Congress’ first acts was to pass the Tariff Act of 1789, which was aimed at protecting domestic industry and raising revenue for the new government. In fact, tariffs actually constituted the majority of the federal government’s revenue until the creation of the income tax in 1913.
With more money flowing into the government’s coffers from the income tax, along with the spoils of major industrial expansion in the late 1800s, import duties became less critical.
Still, after the stock market crashed in 1929, Congress approved the Smoot-Hawley Tariff Act, which raised already high tariff rates and angered the country’s trading partners. Trade between Europe and the U.S. fell by two-thirds, worsening the Great Depression. Some experts also say it helped give rise to extremist ideologies in Europe.
But after World War II, the world rejected “protectionist” trade policies like tariffs, and 23 countries signed onto the General Agreement on Tariffs and Trade in 1947, which later became part of the World Trade Organization.
And we remained in that era of free trade for decades, amid rising globalization and corporations “offshoring” manufacturing to lower-cost countries like China. U.S. manufacturing employment peaked in 1979 at 19.6 million, according to the Bureau of Labor Statistics, but by 2019, that had fallen to 12.8 million, a 35% drop.
Americans’ anxieties over the loss of such blue-collar jobs had been brewing long before Donald Trump, as the manufacturing sector was particularly hard hit by the 2008 Great Recession.
Enter Trump, who tapped into those frustrations with an “America First” pitch.
WHAT’S ON THE TABLE
Trump used tariffs as a tool in his first administration, targeting washing machines, solar panels and crucially, steel and aluminum, key materials in an already pricey housing market. Former President Joe Biden kept many of Trump’s tariffs in place.
But Trump’s tariff threats this time around are more wide-ranging and potentially damaging, economists say. Though the president’s latest threats focused on Canada, Mexico and China, he has previously suggested taxing all goods manufactured abroad at 20%.
That would almost certainly raise prices for consumers, especially since manufacturers wouldn’t be able to avoid a tariff by moving operations to a different country.
Still, Vietnam is expected to be a major beneficiary of Trump’s China tariffs, and some companies already pivoted to the Southeast Asian country during the previous Trump Administration. Apple, for instance, started moving AirPods manufacturing from China to Vietnam in May 2020.
“If previously it was made in China, now it’s going to be made in Vietnam,” Jason Miller, a professor of supply chain management at Michigan State University, told Forbes in November. “That production is not coming back to America.”
EXPECTED IMPACTS
Trump’s China tariffs are expected to impact a wide variety of consumer goods, from electronics to toys and shoes.
Around 80% of toys imported to the U.S. come from China, the Toy Association trade group told Forbes, and around 37% of all footwear imports—totaling $9.5 billion—to the U.S. in 2023 came from China, according to the U.S. International Trade Commission.
And for millions of price-conscious shoppers who rely on low-cost Chinese retailers like Temu and Shein, the tariffs will also close a little-known loophole that allows merchandise under $800 to enter the U.S. without being taxed.
Many electronic devices like iPhones are assembled in China, a core concern for Apple investors as its stock fell 3% the day before the tariffs went into effect. And despite his relationship with President Donald Trump, Elon Musk was the biggest, immediate loser amid the stock market’s tariff reaction early last week, as investors expect the tariffs to impact Tesla’s business and profitability.
Though the tariffs on Canada and Mexico were delayed for 30 days, Trump indicated that they would be needed as recently as Sunday, and they have the potential to wreak havoc on a highly integrated North American supply chain.
Consumers are already conscious about grocery prices, and the U.S. relies heavily on the two countries for fresh produce. Canada is the largest exporter of meat to the U.S. Natural gas and oil from Canada would be subject to a 10% levy, and oil traders and consumers would pay the price. The price of gas is likely to increase up to 40 cents a gallon within days of tariffs on Canada and Mexico, according to Patrick De Haan, GasBuddy’s head of petroleum analysis. Canada sends about 20% of the oil used by Americans.
Tariffs on the two countries would also hit the auto industry hard, as companies like General Motors and Ford rely on Canadian and Mexican companies for parts. Experts estimate the average price of a new car will increase by $3,000, as 22% of all vehicles sold in the U.S. are imported from the two countries, per S&P Global.
“The proposed tariffs on Canada and Mexico are really quite harmful and would change how American firms can do business,” says Tintelnot.
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TRUMP’S PLANS
Separate from tariffs planned for Canadian and Mexican imports, Trump imposed a 25% global tariff on steel and aluminum imports Monday. But the European Union vowed to retaliate, and Australian Prime Minister Anthony Albanese sought an exemption for his country.
And still to come: Trump signaled he would institute his most wide-ranging import taxes yet, reciprocal tariffs. These tariffs are straightforward in theory: The U.S. would place the same levies on imported goods that a country imposes on what they import from the U.S.
But it’s actually more complicated than that, because different types of goods are taxed differently.
If Trump were to implement what’s called “country-level reciprocity,” or the same average tariff that our trading partners place on U.S. goods, the U.S. would see a weighted average tariff rate of 4.8%, Deutsche Bank economists estimated. That’s an increase from a 1.5% effective rate in 2022, per the World Bank. It would also likely result in higher inflation in the short term.
Companies are likely to respond to tariffs in several ways, explains Lori Yue, an associate professor at Columbia Business School. One is building up a supply chain in the U.S., which “doesn’t happen overnight,” or they may lobby the Trump Administration for exceptions.
But ultimately, they’re likely to just pass on the cost, which economists expect to tamp down economic growth.
“Some of the products, especially the agriculture, gasoline and also the automobile products, this affects people’s daily life,” Yue tells Forbes. “They’re going to feel it stronger than last time.”
INVESTMENT GUIDANCE
Finding Safe Haven Stocks Amid Trump’s Tariff Tantrum
TOPLINE While Donald Trump’s 25% tariffs on goods from Mexico and Canada are paused for now, investors should be prepared if that relief is only temporary. The tariffs on China still took effect this month, and Trump may be emboldened to continue using the threat of tariffs as an intimidation tactic.
Adrian Helfert, CIO of alternative and multi-asset portfolios at Dallas-based Westwood, recommends finding protection in small- and mid-sized businesses that have a more domestic focus, which are still broadly undervalued relative to large caps.
He has his eye on U.S. defense stocks like Kratos, a manufacturer of military electronics and drones, anticipating that defense spending will be mostly spared from Trump’s threatened cuts to the federal budget. Another area of the market Helfert is bullish on is regional banks like Texas-based Cullen/Frost Bankers, which will benefit from decreased regulatory costs and more M&A activity and don’t have a large international presence.
One of Trump’s tariff goals in addition to stemming drug trafficking is to pressure other American businesses to bring more manufacturing back to the U.S. and trade more with American peers, which will help smaller companies who already have most of their footprints close to home. Nicholas Galluccio, who manages the Teton Westwood Small-Cap Equity Fund, points out that companies comprising the Morningstar small-cap value index already generate 70% of their revenue domestically and are trading at a 20% discount to large caps, while historically they’ve fetched a premium.
For investors more inclined to invest in passive index funds, the Vanguard Small-Cap Value Index Fund ETF (VBR) could be an appropriate option for shelter from a potential trade war.
WHY IT MATTERS “The stock market cheered Donald Trump’s return to office, rising to new records after he was elected in hopes that his victory would signal a new era of business-friendly deregulation, but it might not be that simple,” says Forbes staff writer Hank Tucker.
“Even economic experts who supported him downplayed his threats of tariffs during the campaign, but now that it turns out he was serious about some of those promises, the stock market could suffer. Regardless of how investors feel about his politics, it’s important to be thinking about which businesses will be more sheltered from trade restrictions with China if tensions continue to escalate and prices rise.”
MORE Trump Says Looming Oil Tariffs Are Negotiable: ‘Depends On What Their Price Is’
STRATEGY + SUCCESS
Trump’s tariff proposals would cost middle-class U.S. households $1,700 in increased taxes each year, as projected by the nonpartisan think tank Peterson Institute for International Economics. So how do you prepare? Consumers can try shopping at discount or bulk retailers like Costco or Sam’s Club, and for groceries, consider your local farmer’s market, though increased demand could drive up those prices, too. If you’re a small business owner, it’s probably a good time to refresh research on your supply chain, taking tariffs into account when considering pricing.
VIDEO
QUIZ
Many U.S. automakers, set to be heavily impacted by tariffs, have operations in Canada just hours from a bridge connected to which American city?
A. Cleveland
B. Buffalo
C. Detroit
D. Seattle
Check your answer.
Thanks for reading! This edition of Forbes Daily was edited by Sarah Whitmire and Chris Dobstaff.