Trump’s threatened tariffs could spike cost of living, complicating Fed’s path forward

ANKARA (AA) – President-elect Donald Trump’s latest threats to impose sweeping new tariffs on imports, particularly from China, are raising alarms over their potential to significantly hike the cost of living for American families.

According to a recent report from the National Retail Federation, the proposed tariffs could slash consumers’ spending power by up to $78 billion annually, impacting goods found in nearly every US household.

While some relief might come from alternative sourcing or increased domestic production, these options would not fully offset the financial burden on households.

Trump’s proposals include a universal tariff of 10% to 20% on all imports and additional tariffs of 60% to 100% on goods from China, which would be layered on top of existing duties.

If implemented, the measures would dramatically inflate the cost of key consumer items such as clothing, toys, furniture, household appliances, footwear, and travel goods.

“Even accounting for alternative sources of supply and potential new U.S. production, the proposed tariffs on these six product categories alone would reduce American consumers’ spending power by $46 billion to $78 billion every year the tariffs are in effect,” said the federation report.

Currently, tariffs on these categories are relatively modest, often in the single digits. However, under the extreme tariff scenario outlined in the report, total average tariffs would exceed 50%.

The proposed tariffs would do more than just squeeze household budgets, as they could also take a toll on the broader economy.

For the six categories analyzed alone, the tariffs are projected to reduce US gross domestic product by up to $50 billion annually and cut average household spending power by $362 to $624 each year they remain in effect.

– Price hikes could affect everyday essentials –

The findings underscore the widespread impact such tariffs could have, with the report emphasizing that families would face steeper prices on essentials.

Critics argue that while tariffs aim to protect domestic industries, they often translate into higher costs for consumers, squeezing household budgets and reducing economic activity.

As Trump prepares to take office on Jan. 20, the debate over the balance between trade protectionism and economic affordability is poised to take center stage.

Higher tariffs would likely drive up inflation as the prices of imported goods rise, creating challenges for the Federal Reserve.

The Fed’s monetary easing policies, such as maintaining low interest rates to support economic growth, could be jeopardized by the inflationary pressure caused by tariff-driven price increases.

This scenario might force the Fed to tighten monetary policy earlier than expected, curbing borrowing, investment, and economic momentum – further straining household finances.

– Experts weigh in on inflationary impact and Fed’s response –

Speaking to Anadolu, Nancy Vanden Houten, lead economist at Oxford Economics, said if implemented, the tariffs would likely be inflationary, creating challenges for the Federal Reserve.

“If these tariffs were implemented as threatened, we expect that they would be passed on to consumers in the form of higher prices, which would be inflationary. That would probably slow the rate at which the Federal Reserve lowers interest rates, although we can’t say that for sure,” she said.

However, she noted that the overall economic impact could be more nuanced, explaining: “If for example, increases in prices of consumer goods cause them to spend less on other things, that could have an offsetting, negative impact on the economy. The Fed will consider the impact of tariffs as part of the bigger economic picture in making policy decisions.”

Citing Trump’s first term as president, Vanden Houten also noted that these threats might be more of a negotiating tactic than a firm policy direction.

“We know from Trump’s first term that he doesn’t always follow through on his threats. In 2019, he threatened to impose tariffs on all products from Mexico unless the country halted illegal immigration but in the end never implemented those tariffs,” she said.

Sant Manukyan, head of the Investment International Markets Department with Türkiye’s Is Bank, noted that the tariffs implemented during Trump’s first term were largely maintained under current President Joe Biden, with some even increased.

He explained that the new tariffs would result in a one-time spike in prices, but whether this leads to permanent inflation remains uncertain.

“This is a one-time development that will create a one-time price increase,” Manukyan said. “Then, whether this will turn into permanent inflation is a matter of debate.”