US consumers will likely bear burden of Trump tariffs

Investing.com -- As President-elect Donald Trump prepares to impose sweeping new tariffs, American consumers are poised to face significant economic repercussions, according to a recent research note from ING. 

Trump's proposals include 60% tariffs on Chinese imports and 10-20% tariffs on goods from other nations, aimed at boosting domestic manufacturing and reducing reliance on foreign imports.

However, ING warns these measures will likely result in higher consumer costs.

“Given that disposable personal income in the US last year was $20.547 trillion, this tariff would represent 2.6% to 3.9% of disposable income, if fully passed on to consumers [the tariffs], i.e. $1,500 to $2,400 per capita,” wrote the bank.

They explained that this would be a substantial burden, given that consumer spending drives 70% of the U.S. economy.

Historical examples support this prediction, according to ING, noting that in 2018, a 20% tariff on imported washing machines led to a 12% rise in consumer prices within months, demonstrating how costs are often passed down the supply chain. 

“Consumers bore more than 60% of the tariff cost on foreign-made appliances,” ING noted.

Additionally, while tariffs have boosted customs revenues significantly—$257 billion under Trump-era duties since 2018—this revenue is largely offset by increased consumer prices.

ING highlights that tariffs act as a tax, reducing disposable income and limiting consumer choices.

They estimate that applying Trump’s proposed tariffs to $3.1 trillion in imported goods could raise customs revenues to as much as $790 billion, but at a steep cost to households, equivalent to 2.6-3.9% of disposable income. 

ING cautions that such policies could also fuel inflation, potentially adding one percentage point to current levels.

"Shifts in consumer behavior are one of the reasons why increasing tariffs cannot become a primary source of government revenue," ING concluded, emphasizing the broader economic challenges such policies may pose.

Source: Investing.com