Drastic price hikes could be in store when Trump tariffs hit, economists say

Although President Donald Trump put a temporary pause of tariffs Thursday, when implemented this summer, they could cause potentially drastic price increases, economists have warned. 

Initial plans from the Trump administration to implement additional tariffs on dozens of nations, were mostly paused for 90 days on Thursday — although tariffs on Chinese imports still jumped to 125%. A 10% tariff on nearly all global imports remains in place.

Importers might absorb some of the costs from the potential tariffs, but some will trickle down to the consumer, said Andrew Forman, chair and professor of marketing, international business and legal studies at Hofstra University. Economists warn it might be wise to revisit your budget as the prospect of higher, tariff-induced prices looms.

“The question is how much,” he added, noting that any imported products, and products made using imported parts or materials, will cost more.

The Tax Foundation, a nonprofit that researches tax policy, estimates the proposed tariffs will on average cost American households nearly $2,000 in additional taxes this year. 

The most immediate impact would likely show up in prices for perishable goods, like groceries, Forman said.

“Unless the importer decides to absorb those expenses and pass them onto consumers, I see nothing but higher prices” and fewer choices, said John Capela, a business professor at St. Joseph’s University who specializes in international trade.

Consumers will need to absorb the costs for necessities like food, but people will likely cut back on large expenses like home repairs, vacations and new appliances, Forman said.

Capela said in an email after Trump's decision to pause tariffs that the delay was likely "influenced by an attempt to reduce tensions and build relations with other nations."

"The 90-day pause on tariffs for most countries is expected to have a stabilizing effect on the prices of imported consumer goods, making it less likely to lead to significant price increases," he said, although products from China may still see higher prices. 

Panic buying is unwise, expert says

As the prospect of higher prices looms, panic buying is unwise, Capela said, pointing out that a rush on a limited supply of goods will also increase prices.

Experts also advise against individuals putting large purchases on credit cards, unless they’re confident they can quickly pay it off.

But, if you have the cash on hand, it’s a good time to purchase big-ticket items like electronic devices or furniture that could be greatly impacted by tariffs, said Ryan Derousseau, a financial planner at Hauppauge-based United Financial Planning Group.

Consumers should plan for higher prices at the grocery store and for other necessities, he said, which means it’s important to stick to a budget and cut back on unnecessary purchases.

“No matter how you look at it, costs are increasing, and your budget will be your first line of defense,” he said.

Derousseau said in an email Thursday, "This pause gives you a chance to look at that budget and plan for what might be ahead."

'Good years, bad years'

Derousseau advised against pulling out of the stock market, adding that if it’s financially feasible, it’s a good time to invest.

“The reality of investing is that you’re going to have good years and bad years,” he said. “What we don’t want is for you to drastically change your investment strategy because of some short-term turbulence.”

The tariffs, by acting as a deterrent on international trade, could also discourage entrepreneurship and cause layoffs, which would feed into a potential recession, Capela said.

“The last president who aggressively wanted to use tariffs was Herbert Hoover,” he said. “Herbert Hoover was the president who literally caused the [Great] Depression.”

Hoover is famous for signing the Smoot-Hawley Tariff Act in 1930, another round of aggressive tariffs implemented by the United States. 

Now, under the latest round of potential tariffs nearly a century later, companies will likely take a hit as people cut back, potentially triggering layoffs and discouraging hiring, Forman said, adding that stagnation — climbing prices and slow economic growth — is a possibility.

The average tariff rate on all imports under the proposed taxes will rise to 16.5%, according to the Tax Foundation, marking the highest average rate since 1937. 

The foundation also estimates that, before foreign retaliation, over the next decade Trump's tariffs would rake in nearly $2.9 trillion in tax revenue and reduce U.S. GDP by 0.7%.

“The biggest issue that worries me is that we are spiraling in this trade war and everything that we know about that, for centuries, is that trade wars always end with everybody losing,” said Juan Carlos Conesa, professor and co-chair of the economics department at Stony Brook University.

Triggering a global recession would be negative for everybody, he said.

The world economy has become much more complex and integrated in the years since the Smoot-Hawley tariffs, Conesa said, meaning that the consequences of disrupting global supply chains could be as large or larger than they were a century ago.

Plus, according to Capela, the tariffs against Canada and Mexico violate a free trade agreement, the United States-Mexico-Canada Agreement, that Trump negotiated in his first term.

His violation of that agreement sets a bad precedent for future negotiations with other countries, he said. “Nobody will want to negotiate with us, and that reduces our position in the world economy.”

Mixed reaction on Long Island

Trump's goal with the tariffs is to create more manufacturing jobs in the U.S., Capela said.

But, as head of the Republican Party, Trump's policies don't seem to represent conservative values, said Capela, who is a lifelong Republican and author of books on exporting and importing. "Conservative Republicans are more pro-trade, free trade, let's minimize government restrictions."

In the meantime, the people likely to be most impacted by tariffs are those with lower-incomes whose expenditure patterns are more focused on tradable goods, Conesa said.

Long Islanders interviewed Monday had mixed reactions to the coming tariffs.

Richard Staff, 71, of Westbury, said the tariffs could prove “cataclysmic” for many Long Islanders.

He's concerned the tariffs will make it more difficult for him to sell refurbished classic cars, making him grateful that he's paid off his mortgage.

Meanwhile, Jeff Frayler, 72, of Bohemia, said he’s cautiously optimistic about the Trump administration’s approach to the economy so far, even though he assumes the stock market has negatively impacted Long Islanders’ 401(k)s.

“It’s still to be decided,” Frayler said. “It sounds good to bring manufacturing and jobs back. That's an important thing.”

With Maureen Mullarkey, Nicholas Grasso and The Associated Press

By Brianne Ledda

brianne.ledda@newsday.com@brianne_ledda

Brianne Ledda covers personal finance and affordability for Newsday. She previously covered Southold and Greenport for The Suffolk Times and is a graduate of Stony Brook University.