President Trump has new trade deals with Japan and the European Union and along with others now recently negotiated, it looks as though tariffs will stay about where they are.
Impacts on Prices
It takes several months for most new tariffs to show up in retail prices.
In January 2018, President Trump raised tariffs on washing machines. Little impact was seen in the consumer price index for laundry equipment until April and the full effect not until June.
Ahead of Trump’s Liberation Day tariffs imports surged in March, and retailers are still running down inventories. Some prices have jumped—for example, strollers and other baby products—but others won’t rise until later this summer.
New tariffs on steel, aluminum and automotive products, special levies on Canada and Mexico and reciprocal tariffs of 30% on China and 10% for other countries have raised the average tariff across all imports about 16 percentage points.
Retail prices shouldn’t rise nearly that much.
Chinese-made car mats that cost $58.97 could increase 5.9% to $66.42, but the actual duties collected would increase only $1.80.
Tariffs are applied to the importer’s acquisition costs where products are made. For the car mats, that was $6. The rest of the price change is estimated by applying customary wholesaler and retailer markups, which each exceed 100%.
Some motorists will do without car mats. When I was a teenager, we improvised by cutting up carpet remnants
If the manufacturer ate just $1, the post-tariff price becomes $62.28.
Many big retailers like AutoZone and Target source directly from factories and could trim new markups—after all most of their other distribution costs haven’t changed.
The tariffs have exclusions—U.S. content in automobiles coming from Canada and Mexico isn’t subject to the 25% auto tariffs.
The average new vehicle retails for $45,000, and tariffs are expected to add $1,800—hardly 25%.
Tariffs and the Federal Deficit
Trump’s tariffs could raise taxes as much as $300 billion annually. That’s 1% of GDP and a sizeable fiscal drag on growth.
However, Congress is cutting taxes and Medicaid and Food Stamps spending and will devote more resources to defense, border security and deporting illegal immigrants.
Factoring in new tariff revenue, Trump’s overall program may boost the federal deficit but not as much as critics complain.
Overall, Trump’s fiscal policies will have a slightly stimulative effect on aggregate demand and growth.
Worker Shortages
During Joe Biden’s presidency, growth was assisted by illegal immigrants and migrants benefiting from parole programs taking jobs.
Trump is shutting down those resources. Conventional legal immigration and indigenous population growth can only support about 90,000 new employees each month, as compared to 168,000 in 2024.
Meatpackers and farmers face challenges attracting enough American workers. Either the president yields on illegal immigrants in some industries, or Republicans will face voters angry about supermarket shortages.
We import and export beef to accomplish the mix of lean cuts and ground beef consumers demand. With meatpackers struggling to find workers, reducing imports would be tough.
Other manufacturing activities are similarly constrained by labor shortages and long lead times to build new capacity. Since the early 2010s, inadequate investment has dampened manufacturing productivity growth.
Outlook Growth and Inflation
We won’t likely slip into a recession, but growth will slow.
Prior to Trump’s second term tariffs, budget and deportation initiatives, Wells Fargo’s economists forecasted 2.1% GDP growth for 2025 but their more cautious estimate is 1.6%.
The OECD similarly downshifted its U.S. forecast from 2.4% to 1.6%.
Over the next 18 months, we can expect a 1% to 1.7% tariff bump to the Consumer Price Index. Spread across six quarters that means inflation will be closer to 3% than 2%, assuming the Federal Reserve remains cautious about lowering interest rates too quickly.
The fear is that elevated household inflation expectations could set off a wage-price spiral.
The good news is that workers can’t easily express those expectations through higher wage demands. Many white collar jobs are being replaced by artificial intelligence, and major companies are thinning ranks.
In public-facing service industries, the opportunities to automate are growing.
At restaurants reading menus and ordering via cell phones could become prevalent as businesses seek to use fewer workers and speed order delivery.
Consequently, the percentage point or so increase in prices is likely to be a one-off
The bad news is most of us will have to eat those higher prices. Trump’s Big Beautifull Bill targets its tax cuts to narrow groups—for example, tipped and overtime workers.
That’s the sacrifice we make to MAGA.
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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.