Tariffs' Hidden Costs: A Disconnect Between Wall Street and Main Street

Tariffs have raised taxes on Americans, with a 18.6% average tax rate on imports, the highest since 1933. Businesses are expected to pass on costs to consumers. The poor are disproportionately affected by tariffs, which hurt the bottom of the economy. Markets have largely ignored the negative impact of tariffs, focusing on infrastructure and AI growth.

New tariffs imposed by the U.S. on goods from numerous countries are poised to significantly impact American businesses and consumers. With import tax rates reaching levels unseen in nearly a century, prices for groceries, furniture, apparel, and imported food and drinks are expected to rise. American businesses and consumers will soon have a better idea of how President Donald Trump's foreign trade agenda might affect them now that the United States has imposed higher tariffs on products from dozens of countries.

It’s been nearly 100 years since the nation had an overall import tax rate as high as the one set Thursday. However, the individual impact on business costs and consumer prices could vary as much as the tariffs applied to goods of nearly 70 U.S. trading partners, from complicated economies like the European Union to the small African nation of Lesotho. Exports from a majority of them are getting taxed at 15%. For a handful of countries in Asia, the rate is 19%. Products from the rest are subject to taxes of 20% to 50%. Meanwhile, a 55% tariff on Chinese-made goods is scheduled to take effect next week if a U.S.-China trade deal is not agreed upon before then.

Businesses in the U.S. and abroad have been dealing with Trump's fluctuating tariffs on specific products and countries since February. Many automakers appeared to have absorbed the costs for now. However, recent government data indicated that retail prices for groceries, furniture, and appliances started creeping up in June. Because tariffs are a tax on imports, economists have expected U.S. consumers to foot at least part of the bill eventually.

The country-specific round enforced Thursday, together with the president's earlier tariffs on specific sectors such as automobiles and steel, will increase prices 1.8% in the short term, the Budget Lab at Yale estimated. That’s the equivalent of a $2,400 loss of income per U.S. household, according to the non-partisan policy research center [1].

Retailers have been able to hold the line on pricing so far, but the new increased tariffs will significantly raise costs for U.S. retailers, manufacturers, and consumers, said Jon Gold, vice president of supply chain and customs policy at the National Retail Federation trade group [1].

The tariffs will almost certainly result in higher food prices, according to an analysis by the nonpartisan Tax Foundation. The U.S. simply doesn't make enough of some products, like bananas or coffee, to satisfy demand. Fish, beer, and liquor are also likely to get more expensive, the foundation said [1].

Apple Inc., for example, has announced plans to invest an additional $100 billion in U.S. manufacturing over the next four years, increasing its total domestic investment to $600 billion. This initiative is part of Apple's broader "American Manufacturing Program," aiming to boost production of essential components such as chips and cover glass for iPhones and Apple Watches within the United States [2].

While this investment is significant, it does not signal a full reshoring of iPhone assembly to the U.S., which remains logistically and economically challenging. Market reactions were positive, with Apple's stock rising 5.1% after the announcement, reflecting investor optimism about the company's commitment to U.S. manufacturing [2].

The poor are disproportionately affected by tariffs, which hurt the bottom of the economy. Markets have largely ignored the negative impact of tariffs, focusing on infrastructure and AI growth.

References:
[1] https://economictimes.indiatimes.com/small-biz/trade/exports/insights/what-us-consumers-can-expect-from-new-tariffs-on-imported-goods/articleshow/123180464.cms
[2] https://www.ibtimes.com/apple-commits-100-billion-expand-us-manufacturing-amid-trade-policy-shifts-3780445