Depending on how they are implemented, President Donald Trump’s massive 25% tariffs on steel and aluminum from all nations, which were announced Monday night, might not have a significant impact on consumers and the prices they pay.
“I still expect the impact on consumer prices to be muted,” Adam Hersh, senior economist at the Economic Policy Institute, told MarketWatch, despite the president’s assertion that no nation is safe from the tariffs, which are scheduled to go into effect on March 4. A lot of things are said by the president. His true intentions and what will truly transpire when the rubber meets the road are not always evident.
Trump’s numerous tariff announcements during his first few weeks in office have caused a great deal of backlash, which some refer to as “tariff fatigue.” Negotiations with these trade partners last week resulted in a 30-day delay of the duties he had unexpectedly imposed on goods from Canada and Mexico; a week earlier, levies on imports from Colombia were also postponed.
Major market indexes increased Monday despite Trump’s weekend threats of fresh steel and aluminum tariffs, according to MarketWatch, because “investors already appear to have become inured to those pronouncements” just weeks into the administration’s new term.
Although most economists concur that businesses eventually pass the cost of tariffs on to customers, which would lead to inflation, it is still unclear how exactly Trump would carry out these taxes. Earlier this month, researchers at the Peterson Institute for International Economics calculated that duties on China, Canada, and Mexico could cost the average American household more than $1,200 annually. However, an examination of the effects of the tariffs imposed on steel and aluminum during Trump’s first term in 2018 reveals that the impact on consumers was actually rather little.
“Consumers really didn’t or barely felt the impacts of these tariffs for several reasons,” EPI’s Hersh said. First, according to EPI, Trump finally removed the metal tariffs on Canada and Mexico in 2019, and as of mid-2020, 108,000 products were free from tariffs due to the ability for businesses to request exceptions.
“A lot of importers didn’t end up paying the tax,” Hersh stated. “Even though Trump is saying no exclusions now, in 2018 the measures also initially had no exclusions and the exclusion petition process was added not too far down the road.”
According to him, “the cost is a pretty small share of the overall final cost of goods,” even if aluminum is utilized in a wide range of consumer goods. In a report about the impact of the tariffs, for example, Hersh pointed out that although the 2018 tariffs sparked worries about the price increases of six-packs of canned beer and cans of Coke and Campbell’s (CPB) soup, the price of aluminum had “no discernible causal effect” on the price of canned beverages because “the aluminum used in beverage cans represents only 5.7% of the manufacturers’ cost of beer in cans.”
Coca-Cola (KO) executives dismissed worries over Trump’s recent aluminum tariffs on Tuesday, stating that while the possible impact is “not insignificant,” packaging only accounts for a small portion of overall expenses and is therefore a manageable issue.
According to Hersh, other nations have strategies to lessen the effects of tariffs while maintaining competitive prices for their goods. For example, they could depreciate their currency to compensate for the majority of the cost increase.
The goal of the tariffs is “revitalizing” the domestic steel and aluminum industries, according to a fact sheet released by the White House. Since 2016, businesses have made billions of dollars in investments in the U.S. aluminum sector, but the industry is still “heavily reliant on imports of upstream aluminum, both smelted and scrap, especially from Canada,” Aluminum Association spokesperson Katie Rosebrook told MarketWatch. “It would take billions of investment over years, if not decades, to make the United States fully self-sufficient for its metal needs.” According to the American Iron and Steel Institute, domestic production presently meets 22.5% of the country’s steel demand.The White House stated in a press statement that tariffs imposed during Trump’s first term did not result in inflation “and only had a temporary effect on overall price levels,” citing EPI research, but it did not immediately reply to a request for comment regarding the effect of these new tariffs on consumer prices.
Inflation-conscious consumers, many of whom supported Trump in November due to growing expenses they attributed to former President Joe Biden’s economic policies, are alarmed by his aggressive use of tariff threats throughout his second term. A researcher at the left-leaning Woodrow Wilson Center, Diego MarroquÃn Bitar, told MarketWatch that if importers’ expenses increase, “inevitably you have to raise their prices to consumers.”
The threat of additional tariffs is “basically an invitation for other countries to sit down at the negotiating table and offer something to [Trump] that he can claim, as Mexico and Canada have already done,” said Trump. “It’s a negotiating tool he’s much more willing to use compared to his first presidential term.”
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