The US President-elect Donald Trump’s love of tariffs could lead to American consumers once again bearing the brunt.
Trump’s victory at the 2024 US Presidential election has made it clear to all that the Republican will likely increase tariffs on imported goods into the country.
Trump has already pledged sweeping tariffs in order to boost the US economy, protect American industry, promote manufacturing and reduce reliance upon foreign shipments.
The President-elect also stated that he intends to implement tariffs of 60% on Chinese goods, and 10%-20% on other products.
He said that by making foreign products more expensive, it would lower the prices of American-made goods, create more factory jobs and shrink the federal budget deficit.
Tariffs imposed by Trump during his first term, and continued and extended by Biden, did not achieve the desired outcomes.
Analysts at ING Group said that if new tariffs were fully passed on to consumers, it could lead to inflation and cost Americans up $2,400 annually.
This potential increase in inflation and consumer costs could have wide-ranging economic implications, especially in an economy where 70% of all activity is spent by consumers.
Prices of washing machines have risen under Trump’s policies
In February 2018, a tariff of 20% was imposed on large residential washing machines imported.
According to the Consumer Price Inflation Report, there was no immediate effect for the first four month as retailers sold their existing inventory which wasn’t affected by the tariff.
According to ING Group, however, consumer prices rose by 12% over the next few months.
According to ING, “since US manufacturers produce washing machine that are not subjected to these tariffs it appears that consumers bore over 60% of the tariff costs on foreign-made appliances.”
Analysts said that the remaining costs were absorbed either by retailers’ profit margins, or by foreign producers by reducing their prices.
As consumers began to switch to domestically manufactured washing machines, and foreign manufacturers agreed to further price reductions, prices will continue to drop.
Tariffs on Chinese products boosted US customs revenues but led to higher prices
The trade war between China and the US under Trump’s former presidency led both sides to impose additional tariffs on goods worth hundreds of billions.
Tax Foundation estimates that the Trump-Biden Tariffs that we’ve seen so far, as President Biden has kept most of Trump administration’s Tariffs in place, are equivalent to an average annual increase of tax on US households between $200 and $300 per year.
Since the introduction of additional tariffs, customs duty revenues have increased dramatically.
According to the Congressional Budget Office, this significant increase in revenue is largely a result of the tariffs imposed by the United States on Chinese products, which increased customs duties from 2020 to 2022 by 0.2% of GDP.
Analysts at ING Group say that despite a rise of customs revenue, this revenue was actually paid by the importing countries or consumers.
This results in a lower profit margin and higher prices to the consumer.
The analysts said:
Customs duties are a tax that can increase the overall price of consumer goods, lead to greater inequality, and reduce consumer choice.
The White House has recently pointed out that even with Trump’s new tariff proposals it is mathematically unlikely they will replace revenue from other sources.
Analysts added that “shifts in consumer behaviour are indeed one of reasons why increasing tariffs can’t become a primary revenue source for the government.”
Tariffs are taxes on consumers
When Trump returns to the White House, there will be increased tariffs on imported products. This could cause disposable income to shrink.
Last year, the US imported goods totaling $3.1 trillion, of which $427 billion came from China.
Analysts at ING said that if consumers did not change their behavior, a 60% tariff would be applied to Chinese imports and a 10%-20% tariff would be applied to the rest of world. This would result in custom duty revenue ranging from $523bn up $790bn.
According to ING Group, the US disposable personal income for 2023 will be $20.547 trillion. This means that the proposed tariff increases could represent between 2.5% and 3.9% of income if they are passed on to consumers in full.
Calculations by the agency showed that this would be $1,500 to $2400 per capita.
ING Group stated that this is significant for an economy where 70% of the total activity is consumer spending.
The analysts noted that:
According to our estimates, the increase in the price of goods combined with the potential supply-side constraint on the labour market due to Trump’s proposed immigration policy could also lead a one-point increase in inflation.
This post How will Trump’s proposed tariffs affect US consumers? This post may be updated as new information unfolds
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