President Donald Trump said on Thursday that plans to install steep tariffs on Canada and Mexico would go into effect on March 4. The plans were announced earlier this month, and then Trump agreed to a 30-day pause after leaders of both nations said they'd beef up security measures along their U.S. borders.
The President plans to impose a 25% import tariff on goods from two of the nation's biggest trading partners, with Canadian energy products facing a 10% tariff. Starting March 4, the U.S. will also add a 10% blanket tariff on goods from China, he said, on top of the 10% levy which went into effect in early February.
The original February tariff announcement temporarily roiled stock markets and corporate supply chains, as investors and business leaders attempted to digest what the news would mean for U.S. consumers.
While most economists agree that the tariffs on Canada and Mexico — and the ones that went into effect against China — would boost prices stateside, it's unclear by how much, or when American shoppers will feel the sting.
"In the short term, if the consumer is shopping with firms that are perhaps smaller businesses, they're probably going to pass along the cost to the consumer," says Jeffrey Roach, chief economist for LPL Financial. "For larger businesses, it's very possible that they might do what they did during the Trump 1.0 administration. And that is, bear a fair amount of the burden of the tariff."
What tariffs could mean for your money
A tariff is a tax on imports, but not one that's paid by the exporting country, as Trump has previously claimed. Instead, it's an additional amount U.S. importers have to pay.
In general, the idea is to generate revenue for the U.S. government while protecting domestic industries from foreign competitors. A side effect, however, is that importers tend to pass along the cost by raising prices.
"Ultimately, the cost of tariffs will be paid by us, the consumer," George Ball, chairman of investment management firm Sanders Morris, previously told CNBC Make It. "[Americans will] be buying things at higher prices than they otherwise would."
Indeed, U.S. companies and industry groups have warned consumers that prices could increase should the tariff plans proceed. American automakers, for example, all of which rely on Mexican and Canadian imports and manufacturing, are still reviewing contingency plans.
And U.S. housing groups have expressed concerns about home affordability.
"Tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices," Carl Harris, chairman of the National Association of Home Builders, said in a February statement.
Analysts say consumers may see upticks in furniture, sneaker and toy prices as a result of the new tariffs on China.
Tariffs can up inflation: 'Start implementing these and the pain feels worse'
It's important to remember that whatever number you see attached to a tariff doesn't come immediately out in the wash in the form of a 1-for-1 price increase. In fact, when Trump installed tariffs during his first term — which President Joe Biden largely maintained — most U.S. consumers hardly noticed.
That's partly because some businesses chose to eat some of the tariff costs and partly because consumers were in a slightly different position than they are now, says Chris Fasciano, chief equity strategist with Commonwealth Financial.
"When President Trump put them into place, inflation was at such a low level that, yes, they did impact the consumer, but it wasn't as noticeable as where we're starting today," he says.
More recently, "people have been focused on what their grocery bill is or what gas at the pump is," Fasciano says. "Then you start implementing these and the pain feels worse, given where we're starting."
A new tariff policy that leads to a higher inflation could cause turmoil for investors as well as the economy more broadly. Should the Fed be forced to hike rates rather than continue cutting them, for example, "that could really torque the markets," says Roach.
That said, the overall message from experts remains simple: Don't panic.
Most of U.S. GDP comes from services, which are not subject to tariffs, rather than goods, which are, Roach points out. So the situation is not worth catastrophizing over: "It's a little premature."
Should harsher tariffs go through, of course, the situation could become more serious, Roach acknowledges. Retaliatory tariffs from trading partners can escalate into trade wars, he says, and those can wreak havoc on economies.
In the short term, though, consumers would be wise to remember that U.S. businesses have flexible supply chains, and that the consumer economy remains strong enough to digest some higher costs here and there.
"The only thing for the consumer to do is to try to be a savvy shopper," he says. "Tariff costs don't pass through immediately, and they're not always passed through 100%."
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