The impact of Trump's tariffs on consumer spending

Donald Trump has officially been sworn in as the 47th US president, marking his second term and an extraordinary political comeback. For several months leading up to yesterday’s inauguration, Trump has been promising to implement sweeping new tariffs as part of his presidency in a bid to protect American industries, promoting domestic manufacturing and reducing reliance on foreign imports.

Within the first month of his election in November 2024, Trump vowed to introduce 25% tariffs on goods coming from Mexico and Canada, and an additional 10% of merchandise coming from China. Together, imports from Canada, Mexico and China represent over one-third of all imports into the United States.

While Trump didn’t immediately impose tariffs on day one, the 25% tariffs on Mexico and Canada are set to come into force as soon as 1st February. But what does this significant change in Northern American trade policy mean for consumers?

Increased Prices at Checkout 

While Trump’s tariffs will increase the cost of goods for businesses, it’s likely these costs will be passed onto consumers. In fact, shoppers are already expecting tariffs to make a dent in their wallets, with research revealing that 67% of US adults believe it is very likely or somewhat likely that companies will pass on the cost of tariffs to shoppers. 

This especially the case for items like electronics, clothing and appliances – a majority of which are manufactured overseas – which could mean a significant uptick in prices. For example, with a proposed 10% tariff on Chinese imports, the cost of smartphones, laptops and household essentials could soar, ultimately squeezing household budgets.

Impact on Discretionary Spending

Price rises as a result of Trump’s tariffs mean we could see consumer budgets tighten even further. Shoppers may have to prioritise necessities including groceries over discretionary goods such as gadgets, clothing, travel and luxury items. 

Such a shift could in turn reduce overall spending in sectors heavily reliant on imports, potentially slowing growth for those retailers that depend on high-volume sales. 

Domestic Goods at a Premium 

The new tariffs are designed to promote domestic production by making imported goods less competitive. While this might have a positive impact on areas like job creation, US-made goods are more often than not more expensive than their imported counterparts, meaning that consumers may still be faced with high costs.

While the US didn’t get any new tariffs on Trump’s first day in office, a comprehensive investigation into US trade relationships is already underway, and according to research, American consumers could lose between a whopping $46 billion and $78 billion in spending power each year if the proposed tariffs go ahead. In a world of increased costs, smarter spending and adaptability will be key to navigate the pending retail reality.