After nearly three months of waiting, President Donald Trump’s plan to impose sweeping tariffs on key and minor trading partners will finally go into effect on August 7.
Since the president announced reciprocal tariffs on April 2, some deals have been struck with major trading partners, including the European Union, South Korea, Japan, and the United Kingdom. In none of these cases will U.S. consumers be spared from tariffs. Instead, the deals limit the rates to levels below those announced in early April.
Foreign markets are not impressed by the deals reached
The Guardian reported on August 4 that European companies are not impressed with the deal reached between the European Commission and the White House, which keeps tariffs on EU imports to the U.S. at 15 percent—half of the 30 percent figure floated in July. Sentix, an indicator that tracks private sector sentiment throughout the bloc, found that most companies surveyed saw the EU as a loser in the agreement, with the vast majority of benefits going to the U.S.
In Japan, which struck a last-minute deal with the White House in late July, Prime Minister Shigeru Ishiba has attempted to emphasize the importance and strength of the agreement, while members of his government have acknowledged the lack of detail in its content.
Bloomberg reported that Japan’s leading trade negotiator, Ryosei Akazawa, said he understood that “having something on paper would be helpful,” in response to criticism about the deal and its implications for the Japanese economy. Akazawa noted in comments to parliament that neither the EU nor South Korea has a deal on paper either, in an attempt to quell concerns that Japan is in a particularly bad position compared to other countries negotiating with the United States ahead of the August deadline.
Use of tariffs to pressure countries diverging from the White House
Other countries have not fared as well. Brazil, which has a trade surplus with the United States—meaning the U.S. exports more to Brazil than it imports—will see rates as high as 50 percent applied to some imports, including coffee. Though the administration has said it is imposing import duties to level the playing field, the trade surplus with Brazil suggests that in cases where the president has political disagreements with foreign governments, he is willing to apply tariffs to exert pressure and seek concessions. In Brazil’s case, the president is targeting current President Lula da Silva and the Brazilian judiciary, which is prosecuting a case against former President Jair Bolsonaro, a close ally of Trump who attempted to overturn the results of Brazil’s elections and remain in power. President Lula has said his country will not cower in the face of these economic threats from the White House and has imposed retaliatory tariffs on U.S. imports.
Administration officials have argued that the president has the authority to use tariffs as leverage in foreign relations, citing executive powers granted for imposing sanctions, which are more severe than tariffs. However, the precedent being set by Trump’s actions against Brazil serves as a warning to other countries: if they deviate from the interests of the White House, they could face economic punishment.
A similar threat was made to Canada after its government announced it would recognize a Palestinian state, with the White House warning that such steps would complicate trade negotiations. Starting August 7, Canadian imports not covered by the US-Canada-Mexico Trade Agreement (USMCA) will be subject to a 35 percent tariff, with higher duties imposed on steel, automobiles, and car parts.
But what do the tariffs really mean for households?
How tariffs could impact inflation and employment
Preliminary economic data is already showing negative pressure on the private sector, as evidenced by the July jobs report and revised employment figures from May and June, which revealed a significant slowdown in hiring across critical sectors, including manufacturing.
The Trump administration has argued that tariffs will entice companies to manufacture their products in the United States. However, that transition could take years, requiring capital investments and the construction of new factories. Most countries impose tariffs on goods they want to see produced domestically. But the widespread nature of Trump’s tariffs raises questions about the administration’s goals—particularly in sectors like apparel, pet accessories, toys, and other commodities. The administration has not indicated an interest in opening new textile factories in the U.S.. Yet, shoppers could still be hit by tariffs when purchasing these goods, as they are not exempt. The Bureau of Labor Statistics found that in June, average consumer prices rose 0.3 percent, with some import-sensitive goods seeing increases above that average—an indicator that higher prices may be on the horizon as importers and retailers determine how to split the cost with consumers.
How will tariffs be priced into consumer goods?
It’s essential to understand how tariffs are reflected in consumer prices. The tariff won’t appear on a shopper’s receipt. It will, however, appear on the invoice for an importer or business owner who sources goods from overseas. The importer must decide whether to split the cost with the manufacturer (in the exporting country), the buyer in the U.S., the consumer, or a combination of these actors. Whatever portion is passed on to the consumer becomes part of the final price, without the consumer knowing how much of it is due to the tariff. Nevertheless, more of their money will go to the federal government than to the revenue of the private company selling the product.
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Overall, if prices rise due to tariffs, consumers will have less money to spend, leading to what economists call an aggregate decrease in demand. If this decrease is significant, unemployment could rise, as companies respond to lower profits by cutting labor costs. Large-scale increases in unemployment can further reduce aggregate demand, creating a vicious cycle of declining consumer spending and rising unemployment. This cycle continues until the economic situation stabilizes and begins to grow again. Targeted investments that get people back to work are one way the government can support stabilization—an example being the New Deal under President Roosevelt, which helped propel the U.S. economy out of the Great Depression in the 1930s.
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