Trump's Protectionism Tariff on the Way: What Goods Will U.S. Consumers Pay More For?
2min read President-elect Donald Trump recently declared his intention to impose a 25% tariff on all products entering the U.S. from Mexico and Canada on his first day in office next year. Additionally, Trump has threatened to levy a 10% tariff on all goods imported from China.
Although the feasibility and legality of Trump's proposals remain uncertain, if implemented, the proposed tariffs could affect a wide range of everyday items used by Americans. Analysts widely believe that this could increase the prices of various goods that Americans rely on, from clothing and footwear to computers and video games.
Walmart's CFO, John David Rainey, recently stated that if Trump's proposed tariffs take effect, Walmart would need to raise prices on certain items. Speaking with CNBC, Rainey explained, We never want to raise prices. Our model is everyday low prices. But there probably will be cases where prices will go up for consumers.
Which Goods Will See Price Increases?
According to the United States Census Bureau, the U.S. imported approximately $1.3 trillion worth of goods from China, Mexico, and Canada in 2023. Investors are currently most concerned about which goods will be most affected and likely to see price increases if Trump's plan is implemented.
Research indicates that oil, electronics, and automobiles are the three categories that will be most impacted by the tariffs.
Specifically, in 2023, the U.S. imported more than $92 billion worth of crude oil, approximately $34 billion worth of passenger cars, and nearly $9 billion worth of natural gas from Canada.
During the same year, the U.S. imported over $65 billion worth of auto parts, about $26 billion worth of computer equipment, nearly $20 billion worth of crude oil, and nearly $14 billion worth of medical equipment from Mexico.
Meanwhile, China is a major supplier of electronics to the U.S. Data shows that in 2023, the U.S. imported nearly $67 billion worth of cell phones and other household items, over $37 billion worth of computer equipment, and more than $32 billion worth of games, toys, and sports equipment from China.
Room for Negotiation
Capital Economics suggests that Trump's new tariff threats might be a negotiation tactic. The company's economist Stephen Brown stated in a report on Tuesday that these tariffs are intended to force the target countries to make concessions on drug smuggling and illegal border crossings, meaning the targeted countries could potentially avoid these tariffs by addressing these issues.
He wrote, This implies that these countries could avoid the tariffs by presenting credible plans and taking actions to reduce drug smuggling or ensure border security, similar to how Mexico avoided Trump's threats in 2019.
Ultimately, it is in the best interest of the countries to cooperate with Trump through commitments rather than threats of retaliation, he added.
Market commentators have also frequently warned that imposing comprehensive tariffs on the U.S.'s largest trading partners is likely to trigger an inflationary rebound.
Dave Grecsek, Managing Director at independent wealth management firm Aspiriant, stated that the one-time impact of the proposed tariffs could raise the core inflation rate by 0.5% to 1% in 2025.
This is not the end of the world, but given that overall prices are already 20% to 30% higher than pre-pandemic levels, it certainly would not be a welcome development, he said.
Additionally, Trump's plan could face legal challenges. Former Mexican Ambassador to the U.S., Arturo Sarukhán, wrote on X that the tariffs would violate the United States-Mexico-Canada Agreement (USMCA), a free trade agreement negotiated by Trump during his first term and which took effect in July 2020.
Therefore, at this point, Trump's proposal could still change. During his first term in 2019, Trump announced new tariffs on Mexico aimed at strengthening the border, but he withdrew the plan following criticism from lawmakers, including some Republicans.
