Paul Wiseman, Christopher Rugaber, Anne D’Nynzio, Business Writer for the Associated Press
WASHINGTON (AP) – For months, American consumers and businesses have heard that tariffs, a massive import tax on President Trump, will raise prices and hurt the US economy. However, the latest economic reports do not coincide with fate and darkness. Inflation actually eased last month, with jobs still strong in April.
For now, this disconnect has companies and consumers struggling to reconcile what is expected, what the numbers are saying, what they are seeing on the ground. Trump and his supporters will quickly point out that his first term of trade war has not led to overall inflation rates across the economy.
So, has it been time to breathe easily?
Still, the economist says. Trump’s tariffs remain huge, the highest since the Great Repression of the 1930s. They are unpredictable. The President will suspend them a few days later and frequently announce tariffs just to remind them of something new. And they’re still going through the system.
“We had a report of good work. We had a cool inflation report, and that’s great,” said Ernie Tedesci, director of economics at Yale’s Budget Institute. “But that shouldn’t give us any comfort next month, especially inflation.”
For example, Walmart warned customers last week that prices for everything from clothing to car seats will rise. Prices for some items, like bananas, have already risen.
Certainly, last Monday, a ceasefire with China dramatically reduced risks to the US economy, and rescued the US and global stock markets last week. The US has removed import taxes (the third largest import source in America) that Trump has been angered on China, from 145% to 30%, which distracts. Beijing reduced retaliatory tariffs from 125% to 10%. JPMorgan Chase economists predicted last month that China’s tariffs had caused a recession, but now they are not expecting it.
Trump’s tariffs are the highest since Great Repression
But even when China’s taxation is low, Yale Budget Lab reported that Trump’s trade war costs will be higher. Climbing prices reduce the purchasing power of an average household by $2,800. Shoes will rise by 15% and clothing will rise by 14%. Tariffs will shave 0.7 percentage points from US economic growth this year, increasing the unemployment rate (now 4.2% lower) by nearly 0.4 percent.
Trump has put a 10% tax on imports from almost every country on the planet. He also places 25% of duties on automobiles, aluminum, steel and many imports from Canada and Mexico.
Yale Budget Lab estimates that Trump’s policy will boost the average US tariff rate to 17.8%, the highest since 1934, rising from around 2.5% when Trump took office. (Other economists have moved tariff rates from 14% to 15%.) During Trump’s first period, average tariffs rose just 1 percentage point despite all the headlines generated by trade policies. Currently, they’re up 15 percentage points, according to the Budget Lab.
I’ve only started to bite the tariffs. In April, import tax revenue collected by US Customs and Border Protection reached just 4.5% tariff rates, Tedeski said. It is partly due to delays in deploying customs duties, including technical flaws that prevent customs from collecting them over the weeks.
The complete impact was also delayed as companies defeated watches by bringing in foreign goods before Trump’s tariffs came into effect. Additionally, retailers and importers have largely stopped shipping shoes, clothing, toys and other items due to new tariffs, but many have resumed imports from China.
Tedeski, the chief economist of President Joe Biden’s Economic Advisors Council, also noted that tariffs take time to translate to higher prices. During Trump’s first term, his taxation on foreign washing machines in January 2018 produced less expensive appliances until April that year. Still, this month’s Federal Reserve survey found that Trump’s duties in 2018 and 2019 mean higher prices two months later, suggesting that consumers could start paying more in June.
Consumers are not willing to accept higher prices
When Trump first changed at the White House, businesses essentially changed since they passed the full cost of his tariffs. Currently, American consumers may be more reluctant to accept higher prices, still being hurt by the burst of inflation following the Covid-19 pandemic.
“Consumers weren’t as exhausted as they are in 2018,” Tedeski said. A survey by the Federal Reserve Bank of Atlanta and Dallas found that most businesses eat a portion of the tariff costs this time.
Trump has long advocated foreign countries rather than paying his tariffs, but on Saturday he accused Walmart of how it would raise prices. On social media, he told the giant retailer, “Don’t eat tariffs and charge anything from your precious customers. I’m watching.
Economic damage comes not only from the costs of customs duties, but also from the unstable ways the president places. For example, the 145% China tariff has just been suspended for 90 days. Similarly, Trump suspended the high taxes last month that the US slapped over imports from countries that operate trade deficits. Will those taxes be returned?
Consumers are clearly afraid that their duties will raise prices as consumer confidence surveys have plummeted since Trump began increasing his tariff threat in February. The Conference Committee’s Consumer Trust Index has fallen to its lowest level for the fifth consecutive month since the depth of the pandemic in May 2020.
More expensive coffee and Christmas wreaths are coming
A snowy owl coffee roaster in Sandwiches, Massachusetts, which imports beans from Brazil, Nicaragua, Burundi and other countries, is planning to raise prices this week to cover the cost of the 10% tariff. We plan to add 35 cents to 25 cents to the price of each cup.
“Taxes are an increase in costs and add a lot of uncertainty about the potential recession,” said Shayna Ferullo, co-owner of Snowy Owl. “We are looking closely for the next year with the goal of truly integrating and operating it.”
Ferro also has to pay far more than his budget to renovate her store in Brewster, Massachusetts (one of her three retailers). She has already chosen not to fill one job after the employee leaves, and has not fired any of her 35 employees, but she is looking at ways that automation can help reduce labor costs.
Jared Hendricks, CEO of Village Lighting Co., stopped shipping supplies from China last month. Now that the US and China have reached an armistice, he is trying to get products to the US in time for the holidays.
He estimates that it will take 10-20 days from China to the port on the West Coast, and that it will take another 20-40 days for the goods to pass through US customs and then to his company in Utah via the Union Pacific Railroad. Given all the delays expected, Hendrix said he is worried that his holiday decorations should not start appearing in stores by September 1st.
Meanwhile, he is thinking of how to make a $1 million bill for tariffs. He hopes that by increasing the price by 10% to 15%, the cost can be covered.
In the meantime, he is trying to secure a loan for his home to pay for the tax.
“We’re moving forward,” he said.
d’Hynenzio was reported from New York.
Original issue: May 19, 2025 10:15am EDT
