VatradeCoin Monitor

Former President Donald Trump raised tariffs sharply while he was in office, and he’s pledged to go further if he returns to the White House in November.  

Vice President Kamala Harris referred to his plans for more tariffs as “a Trump tax” in her acceptance speech as the Democratic Party’s presidential nominee last week. She said Trump’s plan for a 10% tariff on all imports and a much higher levy of up to 60% on all Chinese goods “would raise prices on middle class families by almost $4,000 a year.” 

While economists who spoke to USA TODAY said Harris' characterization of the tariffs may be an overestimate, most said Trump’s aggressive tariff policy could increase prices. But by how much and for how long is more complicated and debatable. The range of forecasts of what the proposed tariffs would cost Americans is wide, typically between negligible and $2,600 a year. A minority even argue Americans will come out ahead in the longer term.

“I’m somewhere in the middle,” said Kent Smetters, a University of Pennsylvania Wharton School professor and faculty director of the Penn Wharton Budget Model.

Forecasts in the thousands make rigid assumptions that aren't necessarily true, some economists said. For example, the Peterson Institute for International Economics, which estimates import taxes would cost the average family $2,600 a year, assumes the entire cost of the tariff is passed on to consumers or domestic producers will raise the price of their goods by the tariff amount, which would allow less efficient production but expand their profits. A study by the nonpartisan Tax Policy Center, which said the tariffs would lower the average post-tax incomes of American households by about $1,800, also assumed consumers would pay the entire tariff amount.

Protect your assets: Best high-yield savings accounts of 2023

"Using that strong assumption, that would be an overestimation of the direct impact on consumers," said Brian Marks, executive director of the Entrepreneurship and Innovation Program at the University of New Haven in Connecticut.

Those estimates aren’t based on “good economics,” Smetters said. 

What would ‘good economics’ say about tariffs and inflation? 

If prices rise because of tariffs, consumers may turn to American-made substitutions, which many economists haven’t considered, Smetters said. 

For example, if an imported item costs $0.95 compared to a similar American-made item at $1 or $1.10, people may buy the less expensive imported item. However, if the $0.95 item rises to $1.45 because of the tariff, consumers might turn to lower-priced substitutions like they did when prices soared after the pandemic, he said. They may end up buying the American-made item for $1 to $1.10 instead.  

“That (difference) is really what you want to capture,” he said. Tariffs “will add to the price. It’s just not as much as some people are saying.”

Instead, he predicts Americans would pay a third of what some of those higher estimates are, or hundreds of dollars more, annually in the short-term. Over time, price increases will stabilize or slow, but "it's going to vary a lot by industry. Some things, people can't substitute away very quickly.” 

The Coalition for a Prosperous America, a national nonprofit organization representing domestic producers, predicted Americans would only see “a small, initial price impact of half a percentage point per year” due to Trump’s proposed tariffs. 

In some cases, tariffs could eventually lower prices for Americans. CPA Chief Economist Jeff Ferry pointed to what happened with washing machines when Trump slapped a 20% to 50% tariff on them in 2018.  

A 2019 study by economists at the University of Chicago and the Federal Reserve showed washing machine prices in the first four and eight months after the tariffs went into effect rose an average 12%, or roughly $86 to $92 more per appliance. 

However, by the time the tariffs expired in 2023, prices had fallen even below 2018 levels, Ferry's research showed. The University of Chicago and Fed economists never did a follow-up study.

"We're actually making more washing machines,” Ferry said, “There's actually a greater, diverse supply for consumers.”  

Marks cautioned that one example isn't proof.

How do tariffs affect jobs in the US? 

About 2,000 new U.S. jobs were created by the washing machine tariffs as two Korean-owned companies opened U.S. manufacturing facilities in the southern U.S to try to sidestep the tariffs, Ferry said. 

In the long run, though, Smetters still believes most Americans will see a lower standard of living because wages won’t necessarily grow for everyone.  

Some Americans will move to one of these manufacturing jobs for a higher wage, but “that’s going to impact very few people,” he said. 

Trump initiated tariffs and Biden expanded some 

Both Trump and President Joe Biden levied import taxes. 

Trump imposed tariffs on thousands of Chinese products valued at approximately $380 billion in 2018 and 2019, which started a trade war with China.

China levied its own 25% tariff on $50 billion of U.S. goods, including agricultural products such as soybeans, corn, wheat, poultry, and beef, which put pressure on farmers, a Congressional Research Service report said in 2019.

More tit-for-tat tariffs followed that year with a trade deal emerging in January 2020.

Trump's tariffs resulted in slightly higher prices, but increased domestic production and smaller imports of Chinese goods, according to a United States International Trade Commission report last year evaluating the tariffs. For example, in steel after a 24% tariff was introduced, it said:

• Annual U.S. imports decreased by 17.2% between 2017 (the year before the tariffs’ implementation) and 2021.
• Annual domestic production was about 5% higher in 2021 versus 2017.
• Prices were "much higher"at the end of 2021 than in 2017, but it noted "several other factors" affeccted the industry and "these other factors have likely, in some cases, had larger impacts...than the tariffs."

However, the trade war that ensued after Trump initiated tariffs hurt the U.S., Marks said.

"Some revenue from the tariffs had to go to subsidize soybean farmers after China stopped buying as many of our soybeans. China bought soybeans from South America," he said.

The Biden administration kept most of the Trump administration tariffs, and in May, announced tariffs hikes on an additional $18 billion of Chinese goods, including semiconductors and electric vehicles. 

Though it's too early to determine the full effects of these tariffs since some are phased in over coming years, the Biden administration said they wouldn't be inflationary. The tariffs were "carefully targeted at strategic sectors" and coupled with federal investments "to create and sustain good-paying jobs," the administration said.

Because the tariffs are targeted, instead of a broad 10% tariff across all goods, inflation would stay in check, the administraton said.

China threatened retaliation.

“I don’t believe that American consumers will see any meaningful increase in the prices that they face,” U.S. Treasury Secretary Janet Yellen said at the time in an interview on the PBS NewsHour.  

She also said the China tariffs protected American manufacturers and workers.

“It’s very important to protect our workers and our firms in these strategic sectors from the kind of dumping that results when China develops massive overcapacity in these areas,” Yellen said. 

When Biden announced his tariffs, he also said they would help protect supply chains by keeping them out of China's control.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.