Americans overwhelmingly chose Donald Trump to reclaim power in the White House. President Trump is now asking them to pay a price for rebuilding America and revitalizing its economy.
Trump has imposed higher reciprocal taxes on items imported by Americans for domestic use. Why? Trump wants worldwide capitalists to come to America and begin manufacturing. This will produce more American jobs and help the country lower its deficit. In the end, Americans benefit from lower-cost items, while importers and countries avoid levies.
It means that American customers will have to pay more for imported goods, like cars and everyday necessities. Most economists believe Trump’s risky bet to confront unfair trade practices will raise prices for American consumers and slow economic growth.
Americans purchases a lot of goods manufactured in Asian countries. The highest tariffs appear to be targeted at countries exporting low-value-added goods such as footwear, furniture, clothes, and textiles. Vietnam, which, after China, has the greatest trade deficit with the United States, will face a tariff of 46 percent. Cambodia was taxed 49%, Sri Lanka 44%, and Bangladesh 37%.
For US consumers buying these imported goods will get expensive resulting in inflationary pressures that may ultimately suppress consumer spending in the United States. Overall, there will be higher tariffs on goods from about 60 countries that have a high trade deficit with the US.
US exports into other countries face higher tariffs and hence Trump has levied similar high tariffs on their exports into US. This has implications on trades between countries eventually leading to inflation, lower spending and de growth. Madhavi Arora, Chief Economist, Emkay Global Financial Services says, “Trade-led US recession takes everyone down. There is no real winner – not even relative!
US recession probability rises dramatically and persisting trade-tariff noises and policy uncertainty will be shaping things for worse – a hostile environment for investment spending. Higher tariffs will imply some combination of lower US corporate profit margins and higher consumer prices (could go up more than 1.5% +). The journey of the US economy will flow from the recent goldilocks to stagflation in coming quarters to possibly dis/de-inflationary impulse, led by permanently lower output.”
Americans have been dealing with rising expenditures for a long time. With inflation rising over 9% in 2021-22, US Fed had to resort to rate hikes in 2022-23 to bring inflation down. The interest rates are still high in US and even inflation remains sticky round 3%. With the newly imposed tariff structure, Americans will have to continue to pay more for fewer quantity of goods; this is what inflation does.
No wonder, recent Commerce Department data shows that inflation-adjusted consumer spending gained only 0.1% in February as Americans increased their savings, while a separate study found that consumer sentiment fell 12% in March. Consumer spending powers over two-thirds of the nation’s GDP and any dent in consumer sentiments could lead to severe economic consequences.
Now after increased tariffs, small businesses in US will be forced to increase costs due to the constant changes in tariff policies. Small businesses in competitive markets will face price hikes due to costs incurred, causing both consumers and businesses to face tough times. Some expects cost of living is also expected to go up by 6% as businesses pass extra costs incurred onto consumers.
USA is world’s powerful and wealthiest nation, thanks to its consumerism. With consumers cutting back on spendings, it’s anybody’s guess, how the economy will respond.