Weekly grocery bills are likely to get more expensive if President-elect Donald Trump follows through in imposing tariffs on imports from Mexico, Canada and China. Everything from avocados to garlic will go up.
AFP via Getty ImagesThat new car you’re eyeing—or even your next grocery run—could cost more after President-elect Donald Trump's inauguration on Jan. 20. Trump plans to sign an Executive Order on day one that would impose 25% tariffs on goods from Mexico and Canada, and threatens additional tariffs on products from China and elsewhere.
Trump said that tariffs will “make our country rich,” because the U.S. “right now loses to everybody.”
Specifically, Trump has said he'll boost tariffs to 60% or more on goods from China.
“The prospect of a trade war looms large, not just between the U.S. and China but beyond,” Forbes markets contributor Courtney Fingar writes.
Here’s what these proposed tariffs are designed to do and what they could mean for American consumers, who should be prepared for potential price hikes.
What Are Tariffs And Why Do They Matter?
A tariff is a tax on imported goods that companies pay to the government when they import products to the U.S., and that tax is usually passed on to the consumer in the form of higher prices.
“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,” Forbes contributor Joe Moglia says. “If the tariffs are too high, there may be no choice other than raising prices.”
The purpose of tariffs is to raise the price of foreign-produced goods, prompting consumers to purchase less-expensive domestic goods and services.
Tariffs are not new for Americans. The U.S. has long used them as a tool to regulate trade with import duties that vary by product and trading partner. Ultimately, tariffs aim to protect U.S. industries from foreign competitors and raise revenue for the government.
A 20% universal tariff could raise $3.3 trillion for the government from 2025 to 2034, according to the Tax Foundation. This is before factoring in the effects on the economy and any retaliatory actions by trade partners, including other countries and trade blocs like the EU.
Experts believe Trump's tariffs threat is a negotiating tool to bring manufacturing jobs back to the U.S.
AFP via Getty ImagesWhat Has Trump Proposed?
Trump's rationale for his proposed tariffs includes restoring manufacturing jobs in the U.S. and, some experts say, using tariffs as a trade negotiating tool. In addition to the economic motivations, Trump cites security: He has insisted that Mexico and Canada stem the flow of illegal drugs and migrants over the border.
“Financial markets have not reacted thus far, because many investors view the threats as a bargaining ploy on Trump’s part,” Forbes contributor Nick Sargen writes.
Here’s what Trump has proposed:
- 25% tariffs on all goods coming from Mexico and Canada, to stop the flow of fentanyl and migrants across the U.S. borders.
- During the presidential campaign, Trump said he'd impose at least a 60% tariff on imports from China. After the 2024 election, he said he'd add 10% “above any additional tariffs” on all goods coming from China until they stop fentanyl production.
- Trump proposed 100% tariffs on goods coming from BRICS countries (China, Russia, Brazil, South Africa, India, Iran, Egypt, Ethiopia and the United Arab Emirates) if the bloc creates a currency to replace the U.S. dollar for international trade transactions. Currently, the dollar is the primary currency for international trade transactions, however, last year, Brazil President Luiz Inácio Lula da Silva called on BRICS countries to create an alternative. He said countries that don’t want to use the dollar shouldn’t have to, adding that it also allows BRICS countries more payment options and protections.
- Trump recently threatened nonspecific tariffs against the European Union if the trade bloc didn’t step up U.S. oil and gas imports.
What Products Could Get More Expensive?
Tariffs on raw materials like steel or aluminum could send the prices of cellphones and laptops through the roof, according to True Tamplin, a Forbes personal finance contributor.
“For example, a 10% ad valorem tariff on a $1,000 laptop would add $100 to its price,” Tamplin writes.
Your occasional Modelo or Corona beer, brewed in Mexico, could also go up, Kate Benot, the lead analyst at Sightlines told Forbes spirits contributor Don Tse.
“Indirectly, they’re also likely to raise the price of beer in aggregate, even beer that’s made in the U.S. or countries not subject to tariffs,” Bernot told Tse.
“If the most popular beers in the country are suddenly more expensive, it gives other producers license to increase prices as well.” Bernot said.
Other goods that could become more expensive:
- Groceries, like avocados, tomatoes, garlic, and other produce from Mexico.
- Electronics and appliances, including washing machines, laptops, phones and TVs, which are made from imported parts from Canada and China
- Clothing, shoes and other everyday goods made abroad
- Home improvement supplies like wood, steel and paint
- Cars like the Nissan Sentra and Mercedes-Benz GLB are assembled in Mexico
“Industries with lots of exposure to imported goods—retail, electronics and even agriculture—could face significant headwinds,” Forbes markets contributor, Frank Holmes writes.
How Did Tariffs Work In Trump’s Last Administration?
The roots of a potential trade war go back to Trump’s first term. A report at the time showed that the U.S. was experiencing job cuts in manufacturing starting in 2001 while China was engaged in unfair trade practices, running large trade surpluses with the U.S. The U.S. also accused China of intellectual property theft —a growing risk to national security.
“Over the next year and a half, the U.S. phased in tariffs on imports from China that eventually accounted for about one-half of the goods it shipped to the U.S.,” Sargen, a financial markets contributor, says.
Prices rose 12% on products like washing machines and dryers, a 2019 study by the Federal Reserve Board and the University of Chicago found. And U.S. companies lost at least $1.7 trillion in market cap, according to a 2020 study by Federal Reserve Bank of New York and Columbia University.
“The tariffs had an impact on U.S. company stock values because, it turns out, tariff increases are a form of industrial policy that lose money for U.S. companies and investors,” Forbes leadership contributor, Stuart Anderson wrote at the time.
China and India notably retaliated against Trump’s tariffs on aluminum and steel imports in 2018, but experts believe Trump’s new tariffs could have an even more significant impact, Sargen says. China has passed laws since 2018 to better respond to U.S. tariffs and President Biden has not only kept Trump’s tariffs in place, but he has imposed additional tariffs on China.
Many investors believe Trump’s tariff threat is just that Sargen says: a negotiating tactic.
Why Are Consumers Worried?
While tariffs can be effective in negotiations, they do risk counter-measures from the exporting country, potentially leading to job losses, price hikes and higher cost of living at home, Sargen writes. However, it’s likely that the price increases will but will not be ongoing.
“Price changes that result from tariffs typically occur all at once,” Bill Conerly, Forbes leadership contributor writes.
There’s also the risk of the spillover effect. Retailers importing the goods will increase the price to absorb the cost of the tariff, however, domestic producers, who aren’t impacted by the tariffs, will feel emboldened and may raise their prices too.
We saw this during Trump’s first term when the price of both washers and dryers rose 12%. Washers were subjected to the tariffs, dryers were not.
Will Prices Go Up?
It’s likely that prices will go up for everyone — consumers and retailers — but it’s not guaranteed.
Global retailers like Macy’s or Kroger will have to diversify sourcing options and strengthen supplier relationships through long-term contracts if they want to stay competitive in the tariff-entrenched market, Forbes retail contributor Shelley E. Kohan writes.
On the other hand, vendors on sites like Amazon, Etsy and Temu have more options.
As Forbes retail contributor Kiri Masters writes, the de minimis law allows direct-to-consumer platforms like Temu to potentially avoid tariffs on individual shipments up to $800 per day, while traditional retailers and sellers importing in bulk would face the full impact.
The Wall Street Journal reported that retailers have already begun buying in bulk, which Kohan warns can be a huge gamble.
“While some retailers have made commitments to advance the purchasing of goods from overseas sources, this can be a large outlay of capital that may not turn into planned margins but instead may lead to overstocks or excessive markdowns,” Kohan says.
However, there are retailers that are looking to take advantage of other retailers' panic buying. Retailers with a secondary-brand purchase business model like TJX, the parent company of TJ Maxx and Marshalls, are looking at the tariffs as an opportunity. The company's CEO, Ernie Herrman, said during a recent earnings call that the company is hoping manufacturers will stock up ahead of the tariffs, creating a surplus of goods and lower prices. TJX purchases goods after they’ve reached the U.S., allowing it to mark down prices 20 to 60%.
How Can Consumers Prepare?
As you prepare for a potentially higher grocery bill and an overall higher cost of living, Forbes contributor Taylor Bauldwin suggests that you look to discount or bulk retailers, like Costco and Sam’s Club. They could be great options for groceries, appliances and electronics.
Local farmer markets in some areas could also be an option for groceries. There's a caveat: As demand increases for local and seasonal shops, it could drive up those prices, too.
“The rising cost of produce due to tariffs underscores how global policies can directly impact everyday expenses for consumers,” Bauldwin writes.
