US president Donald Trump vaunted his new administration’s “swift and unrelenting action” at a speech to the US Congress last night (5 March), but some economists are warning that his tariffs could pose economic risks in the US and beyond.
GDP effect?
Research published by the think tank Tax Foundation yesterday suggests that the 25% tariffs introduced on Canada and Mexico this week will reduce US GDP by 0.2%, cut hours worked by the equivalent of 223,000 full-time jobs and “reduce after-tax incomes by an average of 0.6 percent—before accounting for foreign retaliation”.
The effect of tariffs on China – also introduced this week – is a predicted 0.1% drop in GDP., according to the foundation.
Other tariffs on specific goods, including aluminium, steel and automobiles, will also reduce US growth, the think tank suggests.
Consumer concerns
A CBS survey cited by the BBC this week found that 82% of Americans thought the economy should be a “high” priority for Trump and his administration – while only 30% thought the same about tariffs.
Consumer feeling about the economy has not improved from the same time last year, with those describing it as “bad” rising from 58% to 60% over that period. Only 29% of respondents said they believe Trump is prioritising fighting inflation, and concerns over price pressures are threatening to hurt Trump’s support.
His predecessor as president, Joe Biden, similarly saw his popularity plummet over the cost-of-living crisis.
There is a glimmer of positivity for Trump in the survey, with 51% approving of his handling of the economy (and of government) so far.
‘Pessimism returned’
International think tank The Conference Board published its latest US Consumer Confidence Index at the end of last month – one headlined by the declaration that “pessimism about the future returned” in February.
Stephanie Guichard, a senior economist at the organisation, said that “consumer confidence registered the largest monthly decline since August 2021” in the month.
“This is the third consecutive month on month decline, bringing the Index to the bottom of the range that has prevailed since 2022.
“Of the five components of the Index, only consumers’ assessment of present business conditions improved, albeit slightly. Views of current labour market conditions weakened. Consumers became pessimistic about future business conditions and less optimistic about future income. Pessimism about future employment prospects worsened and reached a ten-month high.”
Inflation fears
The chief executive of American retailer Target told news channel CNBC this week that tariffs are likely to mean higher prices for US consumers.
Tariffs on Mexican goods in particular mean that food imported during the winter months, including strawberries, bananas and others, will become more expensive to provide, Target CEO Brian Cornell warned.
“Those are categories where we’ll try to protect pricing, but the consumer will likely see price increases over the next couple of days,” he said.
“If there’s a 25% tariff, those prices will go up.”
Best Buy CEO Corie Barry, meanwhile, has said that “we expect our vendors across our entire assortment will pass along some level of tariff costs to retailers, making price increases for American consumers highly likely”, as reported by the Guardian.
The defence
US commerce secretary Howard Lutnick, on the other hand, said that while “there may well be short-term price movements, in the long term it’s going to be completely different”.
As reported by Reuters, the administration is planning new ‘reciprocal’ tariffs for introduction on 2 April.
Trump defended the measures during last night’s speech to Congress, arguing that “other countries have used tariffs against us for decades, and now it's our turn to start using them against those other countries”.
