Trump's Trade Plans and Their Impact on Consumer Prices

Investors eagerly await President Donald Trump's next steps regarding his trade agenda. His proposed tariffs on imported goods could have significant consequences for American consumers.

Potential Tariff Impact

Trump has threatened to impose tariffs that could cost an average household hundreds or thousands of dollars annually. However, analysts believe he is unlikely to go to such extremes in his second term. Wall Street remains optimistic about the outlook for Trump's trade policies.

Analysts at Goldman Sachs predict that the White House will prioritize avoiding the economic and political risks associated with widespread tariffs. They believe Trump's threats of a 60% tariff on Chinese imports will ultimately be lower, and that agreements with trading partners will neutralize tariff threats from other countries.

Past Trade Wars

During his first term, Trump's trade wars caused volatility in financial markets. Stock prices fluctuated as Trump threatened and subsequently withdrew tariffs. Ultimately, the first round of tariffs imposed modest but manageable costs on the U.S. economy, primarily impacting industrial goods rather than consumer products.

Outlook for Second Term

Bank of America researchers anticipate slightly higher tariffs during Trump's second term. However, they note that companies have learned from the previous trade war and are diversifying their sourcing outside of China.

"Risks are mitigated compared to 2018, as companies have been shifting sourcing from China to elsewhere," BofA stated in its 2025 outlook.

Full-Blown Trade War Scenario

A full-blown trade war, as threatened by Trump, would entail significant tariffs on nearly all imports. In such a situation, trading partners would likely retaliate with tariffs on American exports, resulting in widespread price increases.

The Peterson Institute for International Economics estimates that Trump's full tariff plan would cost an average family over $2,600 annually in increased costs and lost income.

Oxford Economics forecasts that a full-blown Trump trade war could cause a recession and push inflation above 3%. Businesses would face higher costs for equipment and components, while consumers would experience higher prices for various goods, including clothing, healthcare products, and food.

Market Response

Despite these potential risks, Oxford Economics places the odds of a full-blown trade war at only 5%. "Despite dire warnings over tariffs, the markets are unfazed," they recently noted.

Trump has hinted at potential exemptions from some of his tariff threats. Following the November election, he indicated he might reconsider tariffs on Canada and Mexico if they addressed issues such as illegal immigration and drug trafficking. He also suggested that China could avoid new tariffs by combating the production and export of fentanyl.

The markets remain relatively calm as long as there is the possibility of avoiding the worst-case scenarios.