Tariffs to Hit US Consumers Hard by May End, Warns Former Trump Advisor

Gary Cohn, the former director of the White House National Economic Council, has issued a warning that the full impact of the United States' tariff policies will be felt nationwide by the end of May. This impact will directly affect the supply and pricing of consumer goods. Cohn, who served during President Trump's first term, noted that the effects of the tariffs will become apparent across the country by the end of next month, based on the time required for the transportation and distribution of goods.

Cohn emphasized that lower-income individuals, who spend a higher proportion of their earnings on goods, will be disproportionately affected by the tariffs. He explained that while wealthier individuals tend to save a larger portion of their income, lower-income Americans spend nearly all of their earnings on necessities. This means that any price increases due to tariffs will have a more significant impact on those with lower incomes, as their purchasing power will be directly reduced.

In response to the tariff threats, consumers have engaged in "pre-loading" or "front-end buying" behaviors, purchasing items in advance to avoid potential future price increases. This has led to a surge in sales of cars, consumer goods, washing machines, and technology products, making the economy appear stable in the short term. However, Cohn pointed out that indicators of future expectations, such as consumer confidence indices and various surveys, are showing signs of weakening. For instance, consumer confidence, which serves as a leading indicator of future spending, has already raised red flags.

The financial reports of major consumer goods companies for the first quarter also reflect this trend. While the first quarter showed some resilience, the outlook for the second quarter is generally pessimistic. Companies across various sectors, from fast-food chains to snack giants, airlines, and luxury brands, have issued warnings about slowing sales. Consumers are retreating from the market, purchasing only essential items or those they believe will be more expensive in the future.

Cohn explained that the impact of tariffs is cumulative. He noted that the time it takes for a product to be shipped from China, transported across the ocean, unloaded in the United States, and distributed to retail shelves is approximately eight weeks. This means that the tariffs implemented on April 2 will not be fully felt until the last few weeks of May.

Cohn reiterated that tariffs have a highly regressive nature. He explained that lower-income individuals spend nearly all of their earnings on goods, while wealthier individuals save a larger portion of their income. This means that when the price of goods increases due to tariffs, lower-income Americans will feel the impact more severely, as their purchasing power will be directly reduced. Even if the tariffs cause only a one-time price increase rather than sustained inflation, the lack of wage increases means that "every American is losing purchasing power." Cohn emphasized that the impact of tariffs on lower-income groups is immediate and disproportionate.

Regarding the market's hope for the Federal Reserve to lower interest rates to ease economic pressure, Cohn believes this is unlikely. He stated that the Federal Reserve is doing what it is authorized to do, and the United States is currently in a state of full employment with an inflation rate of approximately 2.4%, close to its target. Therefore, the Federal Reserve has no reason to take action to lower interest rates. Additionally, tariffs are expected to increase inflationary pressures, even if only temporarily. Cohn believes that in this "unpredictable economic environment" and "potential instability," the cost increases due to tariffs will inevitably be passed on throughout the economy, making it even less likely for the Federal Reserve to ease monetary policy at this time.