How Much Trump's Tariffs Will Really Cost You

Consumer prices are expected to go up, but by how much?

Economists are in agreement: Trump’s tariffs are going to cause the prices we pay for things to go up. But just how much more are we actually going to end up paying?

Let’s take a look at that.

Today, the U.S. imports just over $3 trillion worth of goods annually, and these imports make up around a quarter of the goods that we purchase.

The average tariff rate on the imported goods is 2.5%— but that’s just an average.

A lot of goods that are imported into the U.S. aren’t subject to tariffs (like Canadian oil), while others are subject to very high tariffs (like Chinese electric vehicles).

After Trump officially becomes president, both the number of goods that are subject to tariffs and tariff rates are almost certain to go up.

However, we don’t know exactly by how much.

On the campaign trail, Trump threw out a bunch of different tariff proposals— everything from 10% or 20% across-the-board tariffs to tariffs in the hundreds of percent on certain countries and industries.

The Budget Lab at Yale put together one of the most comprehensive reports on this topic that I’ve seen.

They looked at 12 different tariff scenarios and modeled what their impact could be on costs for American households, on inflation, and on GDP.

The most benign scenario they looked at was one in which there is a universal 10% tariff on most imported goods— with the exception of goods from China (which are tariffed at 60%), and goods from the 20 countries that the U.S. has free trade agreements with (which, under this scenario, could continue to enter the country largely tariff-free).

On the other hand, the most draconian scenario they looked at is one in which there is a 20% universal tariff, a 60% tariff on China, a 200% tariff on Mexico, and no exemptions for free-trade-agreement countries.

Based on these scenarios, here’s what they found.

Consumer Price Increases

According to the analysis, for every 1% increase in the average tariff rate, consumer prices are expected to increase by about 0.1%.

In the lowest-tariff scenario, that means that consumer prices would rise by 1.2%, while in the highest-tariff scenario, they would rise by 5.1%.

That translates into a cost for the average U.S. household of $1,900 to $7,600.

Now, these numbers are a bit concerning; especially that $7,600 number— that would be a big cost for most households!

Fortunately, the numbers might overstate what we’d actually see as a result of Trump’s tariffs.

As the Budget Lab points out, if prices for imported goods go up, consumers will tend to buy fewer imported goods and substitute them for goods produced in the U.S.

Or in cases where there are no domestically-produced alternatives, they’ll probably favor imports from countries with lower tariffs over imports from countries with higher tariffs.

Assuming we see this type of substitution, the rise in consumer prices could be anywhere from 0.5% to 2%— which is less than half the increase we’d see without substitution.

To put that in perspective, inflation was 5.9% in 2021 and 2022; 2.8% in 2023; and is on track to come in at just under 2.5% this year.

So, based on the modeling done by Yale’s Budget Lab, the Trump tariffs probably aren’t going to lead to the type of inflation we saw a couple of years ago where prices were absolutely skyrocketing, but the impact could potentially still be noticeable if we see some really draconian tariffs.

After all, 2% inflation is what the U.S. central bank, the Federal Reserve, targets. If you add half a percentage point to that, it probably won’t register all that much.

But if you add another 2% on top of that, you’re going to feel it.

Wide Range of Possibilities

You also have to consider that the price increases we see as a result of Trump’s tariffs will disproportionately impact certain categories of goods.

Goods that are predominantly imported, like apparel, toys, and footwear, could rise dramatically. The National Retail Federation estimates that prices for those goods could jump by anywhere from 6% to 56% because of Trump’s tariffs.

So, there is the potential for very significant price increases in some areas, but a lot of this depends on what type of tariffs Trump actually ends up implementing.

Trump, as we all know, has a habit of changing his mind often. And we could get anything from lower-than-expected tariffs to higher-than-expected tariffs and everything in-between.

The only thing we know for sure is that tariffs are going to go up: the Budget Lab projects that the average tariff rate in the U.S. would increase from 2.5% currently to anywhere from 9% to 30% under the various scenarios that they analyzed.

It’s also important to keep in mind that the impact of tariffs isn’t just going to be limited to the prices we pay for things. Tariffs reduce consumer choice; they disproportionately hurt certain industries that rely on imported goods; and they often lead to retaliation from other countries, which hurts U.S. exporters.

The Budget Lab projects that in the highest tariff scenario, GDP would fall by 1.4% over the medium term.

The U.S. economy has grown at an average annual rate of just under 2.5% over the past decade, so this would be the equivalent of erasing a little more than half a year’s worth of economic growth.

Anyway, I’ve talked a lot about the downsides of Trump’s tariffs, but there is a rosier interpretation of them as well.

The hope from Trump and others who support tariffs is that they eventually lead to stronger domestic industries, more jobs, and a reduction in trade imbalances.

If you want to learn more about the big debate surrounding tariffs and what it means for the U.S. economy, check out this post.

Thanks for reading!