Key takeaways
- The Trump administration’s tariffs against Mexico, Canada and China could soon affect prices on store shelves.
- Experts estimate that the average household might pay thousands more annually for everyday expenses due to tariffs.
- You can compensate for higher prices by comparing costs at different stores, shopping sales and refining your budget.
Shortly after returning to the White House, President Donald Trump made good on a campaign promise to ratchet up tariffs against America’s biggest trade partners. In March, he moved forward with 25 percent tariffs on goods from Canada and Mexico, as well as 20 percent tariffs on Chinese imports.
By placing new tariffs, which are essentially taxes on imports from other countries, Trump hopes to encourage U.S. consumers to buy more American-made goods. The Trump administration expects tariffs will raise billions of dollars in revenue, which could be used to balance the federal budget, and the president believes tariffs may strengthen his hand in negotiating immigration and drug trafficking deals with America’s neighbors.
While the Trump administration says that tariffs will help the economy, economists are less sure. Mexico, Canada and China are the U.S.’s biggest trade partners, and Americans use products imported from those countries every day, from produce to cars to housing materials, like lumber. Companies are likely to pass the cost of tariffs onto consumers, who, due to inflation and low wages across the country, are already concerned about the prices of food, gas and other everyday expenses. What’s more, higher prices could impact their ability to save money.
While no one can predict how Trump’s tariffs plan will shake out exactly, experts are predicting tariffs might have a significant — and immediate — impact on Americans, starting on grocery shelves. Bankrate spoke to experts in finance and economics to better understand how tariffs will impact you and your wallet.
These interviews have been edited for length and clarity.
Given that most economists expect tariffs to lead to higher prices, how long might it take Americans to see the impact of tariffs on the prices of goods?
The time lag will be different across different sectors of the economy. The two major factors are how much inventory firms in a given industry hold and how competitive that industry is. For example, a tariff on fresh agricultural goods will probably show up in grocery prices very quickly (probably just a matter of days), as grocery stores have to sell their fresh produce quickly and don’t have much of a margin to absorb increases in costs.
Conversely, heavy equipment manufacturers, who often have larger inventories of intermediate goods and raw materials that they need, may have a longer lag time before they start passing along higher prices to consumers. In that case, it could be a matter of months before consumers notice higher prices.
— William R. Hauk, Jr., Ph.D., associate professor, Department of Economics, University of South Carolina Darla Moore School of Business
The impact of tariffs on prices will depend on the type of product. Many grocery items, for example, are likely to go up in price within a month. This is because grocery items have limited shelf life. Grocery stores can stock up only in limited quantities. In contrast, car prices may take longer to go up — perhaps three to six months. This is because dealerships have significant inventories of cars that they bought before the tariffs took effect. Of course, all of this depends on changes to tariffs.
— Jesus M. Salas, Ph.D., associate professor, Perella Department of Finance, Lehigh University College of Business
How might these tariffs affect the average American’s budget, such as their grocery bill, transportation costs and utilities?
The largest potential impacts will likely be in the agriculture, automotive and energy sectors. The auto industry, with supply chains stretching across all three countries (China, Mexico, Canada) is particularly impacted. Retailers such as Target and Walmart have warned that they will not be able to absorb the entirety of the tariff impact and so will most likely need to pass along at least some portion of tariff costs to consumers. Reliable estimates indicate the U.S. consumer price level may rise by around 2 percent this year, the equivalent of $3,000 per average U.S. household.
— Rodney Sullivan, executive director, University of Virginia Darden School of Business Mayo Center for Asset Management
Salas: Grocery bills will go up, but the increase in prices will depend on what people buy. It is likely, for example, that consumers might switch what they buy because of the increase in prices of some grocery items. For example, consumption of avocados may fall a bit because of the expected increase in prices. Similarly, people may buy table syrup for maple syrup if the price of maple syrup rises due to tariffs. I would anticipate a 5 percent increase in groceries for the average family given a 25 percent increase in prices for goods coming from Mexico and Canada.
Higher prices could put additional strain on people’s budgets
What are some ways tariffs might impact Americans long term, in ways we don’t yet realize?
Sullivan: Tariffs and retaliatory tariffs could contribute to more prolonged economic and inflation pressures, even leading to stagflation (a combination of higher inflation and slow economic growth) if they trigger broader economic effects such as supply chain disruptions or cause wages to spiral higher over time.
Salas: As prices go up, the Federal Reserve is likely to wait longer before they lower interest rates. This means that the cost of borrowing for cars and homes will continue to stay high for longer. Also, Mexico and Canada might retaliate against the U.S., in which case U.S. producers will see a decline in demand for their products. As a result, it is possible that some people in the U.S. might lose their jobs and small manufacturers might go out of business.
Also, some car manufacturers might realize that U.S. consumers are not likely to pay 15 percent more for a car because of the tariff. Therefore, car manufacturers may reduce car output. As this happens, the supply of new cars in the U.S. will fall, and the prices of all cars will go up (even cars that are not affected by tariffs). This will impact the price of used cars as well.
How did tariffs affect the March Fed meeting?
The Fed keeps rates steady while warning of increasingly uncertain economic outlook
Is there anything the average American can do to mitigate rising prices due to tariffs?
Hauk: Not easily. When there are domestically-produced alternatives at a competitive price, consumers can avoid price increases due to tariffs through switching to domestic brands. (However, if they were competitive to begin with, imports would probably not have been as prominent.) Otherwise, consumers can just use price-sensitive shopping techniques such as coupon-clipping and brand comparisons that they would normally use if their budgets were tight.
Sullivan: It’s important to review your family budget, adjust it for the impact of inflation like higher food costs, and then also add some costs for one-off unexpected things so that you’re ready when these do happen. Look for areas where you might be able to cut your expenses such as eating out less or eliminating streaming services that you use infrequently.
Salas: Some car manufacturers produce more outside of the U.S., and some produce more within the U.S. Therefore, the increase in car prices will not be uniform. Consumers who are flexible in terms of what car to buy should shop to find the cars that increase in price the least.
What you can do about rising tariffs
You can’t control the price of groceries, but if you’re worried about the impact of tariffs on your checking account, you can control your budget and spending. Consider any of the following ways to alleviate the additional strain on your budget:
- Shop sales: You can put away the scissors — shopping sales and clipping coupons is a lot easier than it used to be. Check out your local store’s website or app for weekly deals on groceries and household items; many stores nowadays even offer coupons exclusively through their app. Also, consider shopping late at night. Many stores offer discounts on perishable products before the store closes.
- Buy in bulk: Buying your most commonly used items in bulk is a great way to save money. Wholesale stores like Costco and Sam’s Club offer deals on grocery and household items, but they also mostly offer products in large quantities. If you don’t have the luxury of an extra-large pantry, you can still shop at local stores that sell unpackaged goods by weight. (Aisles of these items are typically offered at health food stores and co-ops.) These goods are often cheaper than pre-packaged products, and these aisles often offer a wide variety of shelf-stable products, like flour, candy, coffee, tea and spices. They’re also great if you only need a small amount of something, so you don’t have to shell out for a large package.
- Comparison shop: You probably know to compare prices for big-ticket items at multiple stores, but don’t forget to do a comparison shop for your weekly grocery shop, too. Check online or download the app for different stores in your area. You can compare prices for your most commonly purchased items to make sure you’re going to the most affordable stores near you. You don’t need to hit up every store near you, but going to two or three stores instead of one will make sure you’re getting the best deal for everything on your list. Using pickup services available at some stores will also make stopping at multiple places easier and will help you avoid the urge to impulse buy.
- Edit your budget: If you haven’t edited your budget in a while, now is the time to look at it. Make sure it’s up-to-date with your latest bills and expenses, then go through it with a fine-toothed comb to remove any recurring charges you no longer want to pay for, like unused subscriptions or memberships. If, after that, you still need some more room in your budget, consider shopping around for a new provider for your utilities, car insurance or other expenses.
- Switch to a high-yield savings account: If you’re worried about how rising prices will impact your ability to save, you could consider a high-yield savings account (HYSA) to stash your savings. HYSAs offer much higher annual percentage yield (APY) than normal savings accounts, and can give your savings a potentially much-needed boost.
Experts interviewed by Bankrate
Bankrate interviewed three experts from universities across the country for their insights about tariffs’ impact on Americans:
William R. Hauk, Jr., Ph.D., associate professor, Department of Economics, University of South Carolina Darla Moore School of Business
William R. Hauk, Jr. is an associate professor in the Department of Economics at the Darla Moore School of Business at the University of South Carolina, where he arrived after receiving a Ph.D. from the Graduate School of Business at Stanford University in California and a B.S. from the School of Foreign Service at Georgetown University in Washington, D.C.
He has taught international trade, intermediate macroeconomics, principles of macroeconomics and government policy toward business at the undergraduate levels and regularly teaches an international trade course for the doctoral program.
Jesus M. Salas, Ph.D., associate professor, Perella Department of Finance, Lehigh University College of Business
Professor Jesus M. Salas joined the Perella Department of Finance at Lehigh University in 2008. He is the founder and director of the Latin American Finance Association. His teaching and research interests include investments, privatization, tariffs, corporate finance, corporate governance and corporate risk management.
Professor Salas has published in The Journal of Financial Economics, The Journal of Financial and Quantitative Analysis, Organization Science, The Journal of Banking and Finance, The Journal of Corporate Finance, The Journal of Real Estate Finance and Economics, and others.
Rodney Sullivan, executive director, University of Virginia Darden School of Business Mayo Center for Asset Management
As executive director of the Richard A. Mayo Center for Asset Management, Rodney Sullivan has primary leadership and managerial responsibility for the administration and oversight of all of the center’s activities. Sullivan joins the Darden School from AQR Capital Management, the Greenwich, Connecticut, based investment management firm where he served as vice president and head of investment content. An investment industry leader with an extensive track record of developing and communicating innovative research and ideas, Sullivan helped establish and led the firm’s editorial board and was a founding member of the AQR Asset Management Institute at London Business School. Prior to joining AQR, Sullivan worked as head of publications and editor of the Financial Analysts Journal at CFA Institute for more than 10 years, including oversight responsibilities for a suite of publication services aimed at the investment community. A Chartered Financial Analyst and Chartered Alternative Investment Analyst, Sullivan holds a bachelor’s and master’s degree in economics from Virginia Commonwealth University. Rodney also currently serves as an editor for the Journal of Alternative Investments published by CAIA Association.
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