Consumers across the nation are bracing themselves for a wave of price hikes as businesses gear up to transfer the burden of escalating tariffs onto their buyers. According to Gregory Daco, the chief economist at EY-Parthenon, the impact of President Donald Trump’s recent 25% tariffs on Canada and Mexico, along with an additional 10% duty on imports from China, is set to reverberate through the economy.
A recent survey by EY involving 4,000 executives revealed that nearly half of the participants are willing to shift two-thirds of the increased tariff costs to their customers. Even more strikingly, over 30% of those surveyed indicated a readiness to pass over 90% of the additional expenses directly onto shoppers.
The new tariffs on goods from Mexico have already prompted Target CEO Brian Cornell to warn of impending price hikes on produce. These abrupt increases are part of a broader escalation of the trade war under the Trump administration, which has caught many experts off guard. Gregory Daco remarked on the surprise element of the current pace of tariff implementation, stating that it is “much faster than we had previously seen.”
The economist’s calculations suggest that the tariffs could deal a significant blow to the U.S. economy, potentially reducing the gross domestic product by 0.6%. This projection assumes 20% duties on Chinese imports and an average of 3% tariffs on goods from other countries. Daco noted that these estimates were made under the assumption that tariffs would be implemented at a later date, rather than the immediate timeline unfolding.
The uncertainty surrounding the trade war is causing businesses to take proactive measures to protect themselves against future shocks. This includes steps like increasing inventories, exploring alternative supply chains, and seeking out different sourcing options. While these actions may help build resilience, they also come with a price tag that can increase inflationary pressures across the board.
Daco emphasized that uncertainty is a significant deterrent to economic growth, as businesses are forced to make decisions based on incomplete information. Specific tariffs, in particular, can have a severe impact on various sectors, such as automotive, construction, and steel production. Although the effects of these tariffs may take some time to filter down to consumers, the ultimate result will be higher prices on everyday goods.
Even if the tariffs are lifted in the near future, Daco warned that the price increases could persist due to the sticky nature of inflation. Pulling back tariffs does not erase the negative impact that the uncertainty and price hikes have already had on the economy. As a result, consumers should be prepared to see prices rise across a range of products, from automobiles to household appliances, as the full effects of the tariffs take hold.
