The age of tariffs has arrived.
Following numerous revisions and delays, the majority of President Trump’s tariffs went into effect this week, imposing a 15% rate on the majority of nations, though some, like India, may be subject to significantly higher import duties.
According to the most recent estimates from Yale’s Budget Lab, the United States has now imposed the highest amount of tariffs since 1933, with an average tariff rate of 18.6%.
What does this all mean for you and the United States? These are the responses to the five most frequent questions we get when reporting on the economy for NPR.
Yes, we’ll probably have to pay more for stuff
Price increases are probably unavoidable. This is due to the fact that the majority of economists think that the expenses of the tariffs will be divided among you, the businesses importing goods into the United States, and the exporters abroad.
However, because American businesses are bearing the majority of the costs, consumers have not yet experienced the full impact.
Consider General Motors. The carmaker stated in July that tariffs had already cost it roughly $1.1 billion in the previous quarter, but it chose to bear the majority of those costs and suffer a decline in profits.
It can’t continue.
In the end, businesses will need to persuade their foreign suppliers to bear a portion of the expenses, which they will then have to pass along to you in the form of price increases.
We don’t know how much more we’ll pay
That brings up another frequently asked topic. To what extent will prices increase? We wish we knew, is the response.
Projections exist. For instance, the Yale Budget Lab predicts that among the items having the largest short-term effects will be apparel and textile prices, with shoe prices possibly increasing by 39%.
However, it is evident that customers do not consider prices in terms of percentages. A common question is how much more their preferred shoe brand will cost. And that becomes complex.
For example, a 15% duty on the European Union does not necessarily mean that you will pay 15% more for Italian olive oil because, as mentioned, the people who pay the tariffs will probably be divided.
Retailers have some leeway in determining how much to charge for the items that reach their shelves, even though importers or exporters may bear some of the expenses.
Based only on current knowledge regarding tariffs, the Yale Budget Lab projects that households will spend an average of $2,400 this year as a result of tariffs.
Overall, inflation will rise, but perhaps not too badly
When you add everything together, inflation will unavoidably increase. However, it’s equally critical to maintain perspective.
In July, consumer prices increased 2.7% over the previous year, which was a larger yearly gain than the preceding three months. Additionally, analysts predict that as tariffs go into force, inflation will rise much more.
Even so, the rate of inflation will still be significantly lower than it was in 2022, when it reached 9.1% annually, the highest level in over 40 years.
The issue is that people’s moods are often affected by inflation.
Atlanta Federal Reserve President Raphael Bostic remembered this week how former Fed Chair Alan Greenspan once claimed to know whether the Fed was effective in fighting inflation: People wouldn’t even be considering it.
“This is essentially the opposite of that. Every day, it makes the front page,” Bostic remarked. “So people are thinking about this, and I worry about what that means for how consumers and businesses will approach their strategies for engaging the market moving forward.”
The labor market could get worse
Tariffs may also have an impact on people’s job security, which is typically where they suffer the most.
Only 73,000 jobs were created to the economy in July, according to Labor Department data released last week. Additionally, job gains that had been calculated for May and June were essentially wiped.
Considering how robust the labor market had been during the previous two years, the figures were startling. Despite a slight increase to 4.2% in July, the jobless rate is still historically very low.
However, as businesses absorb increased tariff expenses and become more cautious about their investments, experts now predict that hiring will decrease this year.
Although there haven’t been many notable layoffs in the US economy this year (apart from the federal sector), there are indications that it’s becoming more difficult for people, especially recent graduates, to obtain new employment.
Additionally, a weakened employment market might negatively impact people’s moods by making them apprehensive of the future and more inclined to reduce their spending.
The economy will likely slow but perhaps without a recession
The majority of analysts anticipate a sluggish economy as a result of all these variables, which are causing growth concerns. However, other surveys, including a recent one from The Wall Street Journal, indicate that the majority of forecasters do not anticipate a recession.
And as investors bet that the U.S. economy can survive Trump’s tariffs, stock markets have soared, with the S&P 500 and the Nasdaq recently reaching all-time highs.
However, one thing is certain: the consequences of the tariff will be felt by everyone, from individuals to businesses, even if the economy escapes a recession.
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