Steve Madden shoe boxes are displayed Nov. 11 at a DSW store in Novato, California. In response to President-elect Donald Trump’s proposed tariffs, shoemaker Steve Madden intends to import fewer goods from China and shift production to countries such as Vietnam, Cambodia, Brazil, and Mexico.
Economists say Trump’s proposed tariffs would raise prices despite his promise to lower them for groceries, rent, and other necessities.
President-elect Donald Trump has promised to reduce prices for groceries, rent, and other necessities of life.
U.S. presidents rarely control these prices, but their policies can.
Tariffs, or import taxes, are among Trump’s proposals that economists believe have the potential to have a significant impact.
Why Trump tariffs could be bad for prices
On Monday, Trump threatened to impose new tariffs on Mexico, Canada, and China, the US’s three largest trading partners, as soon as he takes office on January 20.
The Republican announced that the new tariff rate for goods from Canada and Mexico would be 25% as part of a pressure campaign to reduce the illegal drug trade and immigration.
Trump proposed an additional 10% tariff on China after previously promising a 60% tariff on its products. He has also proposed tariffs ranging from ten to twenty percent on other imports.
Trump claims his plans will bring manufacturing jobs back to the United States. However, economic experts warn that Trump’s proposals will increase the cost of cars, appliances, and technology, putting American families at a financial disadvantage.
According to Wayne Winegarden, a senior fellow in economics at the right-leaning Pacific Research Institute, additional tariffs will raise the prices of both foreign and domestic goods.
“We import steel that goes into the production of cars, so cars will be more expensive,” according to Winegarden. “You may see prices going up.”
Winegarden described the tariffs as a broad-based consumption tax that will harm the economy.
“How bad just depends on how high the rates are, and there will be secondary effects in terms of how other countries respond as well,” according to him.
“Even if they don’t respond—I think that’s important for people to know, even if nobody raises their tariff in response to us—we’re still making U.S. families worse off.”
According to the Budget Lab at Yale University, a nonpartisan research center, a broad 10% tariff and a 60% China tariff would have an additional $2,421 per household in 2023 dollars, even if no tariff retaliation occurs.
What about inflation?
Many voters were concerned about the economy during the presidential election, though inflation has generally slowed since reaching a high of 9.1% in June 2022.
In October, 62% of registered voters stated that the economy is in poor condition.
However, economists believe that prices will not fall significantly to where they were during Trump’s first term. If prices fell that dramatically, it was most likely due to a weak economy.
Lauren Saidel-Baker, an economist at ITR Economics, a nonpartisan economic research and consulting firm based in New Hampshire, predicts that inflation will continue to slow until the end of the year before picking up early next year.
Saidel-Baker stated that she had this expectation before considering Trump policies because the money supply is expanding, resulting in a faster pace of transactions. However, tariffs are one of her primary concerns about how Trump’s policies will impact inflation next year.
She stated that, while goods inflation is currently under control, the services sector is more vulnerable to it due to a tighter labor market. Under the Trump administration, goods inflation could resume.
“Tariffs may cause goods to catch up. However, we have long-term demographic problems that will keep the labor market tight. I don’t see service inflation improving materially, particularly if we do things like mass deportations, which will reduce the working-age population,” Saidel-Baker said.
What we know from past Trump tariffs
During his first term, Trump imposed tariffs on a variety of imports, including steel and aluminum, solar panels, and washing machines. China was among the countries that responded with retaliatory tariffs.
Although Trump’s tariffs increased employment in the steel and washing machine industries, they resulted in a 0.2% drop in long-term GDP and a loss of 142,000 full-time jobs, according to the Tax Foundation, a tax policy think tank.
“We already have evidence of what his tariffs will do during his first term. And they are not positive.” It did not achieve what he promised,” Winegarden said.
Marshal Cohen, chief industry analyst at the NPD Group, a market research firm, said many companies have already moved production away from China as a result of Trump’s first-term tariffs.
Steve Madden CEO Edward Rosenfeld explained in an earnings call that the company is implementing a strategy to reduce its reliance on China, which accounts for more than 70% of its imports.
Despite this shift, Cohen believes that tariffs will have a greater impact on certain goods, such as technology, cars, appliances, and the toy industry, which are based in or have strong ties to China.
How companies will respond
Companies like Columbia Sportswear, AutoZone, and Stanley Black & Decker have announced that they will raise prices in anticipation of tariffs.
“If we get tariffs, we will pass those tariff costs back to the consumer,” AutoZone CEO Philip Daniele said during an earnings call.
Isabella Weber, an associate professor of economics at the University of Massachusetts Amherst who recently co-authored a paper on companies’ pricing strategies, explained that how much companies are willing to raise prices depends on how much sales fall.
“We have seen that companies were willing to raise prices even if it meant reducing volume sold. So, falling demand is not always a reason for businesses not to raise prices,” she explained. “However, if sales fall too far, further price increases will no longer benefit the bottom line.”
In some segments, particularly those where low-income households are important buyers, such as fast food, that point may have been reached.