Sunita Sohrabji
American Community Media
American consumers are feeling the burden of President Donald Trump’s global tariffs plan, both at the checkout counter and in the labor market.
“Tariffs are a tax on consumer goods, and in particular for goods like clothing, electronics, coffee, furniture, and toys,” said Dr. Neale Mahoney, Director of the Stanford Institute for Economic Policy Research. “As we head into the Christmas shopping season, we expect to see fairly large price increases,” said the Stanford professor of economics, while speaking at an Aug. 15 news briefing hosted by American Community Media.
Trump’s sweeping plan — which he is still negotiating with several countries after announcing the initiative April 2 — imposes an average 15.8% tariff across the board. Some countries, such as China, Brazil, Canada, and India, face far higher tariffs. India and Brazil currently have been slapped with 50% levies, largely punitive, while China faces a 145% tariff on goods — except certain high-end electronics — unless it can successfully negotiate with Trump before November. The president has also increased tariffs on Canada, an ally, from 25% to 35%.
Price Increases
Mahoney noted that the US imports about 10% of its consumer goods. He predicted that consumers would overall see a 1.5% rise in prices. “The effects are meaningful, but not catastrophic. But prices overall are moving in the wrong direction.”
The economist noted that Trump had inherited an economy that was “the envy of the world.” But the uncertainty of not knowing where tariffs are going to spike next has squandered that advantage, he added.
“In 2024, the economy grew at 2.5%. This year, it’s growing at 1.2%, half that amount. Last year, consumer spending was driving the economy growing at 3%. This year, consumer spending is flatlined as consumers are sitting on the sideline. Inflation was decreasing last year. Now it’s picking up. We haven’t seen a large increase in unemployment, but we could be heading in that direction,” said Mahoney.
Labor Market Cooling
Employers are holding back and not replacing employees as they leave. Firms are holding back on new hiring. “While we’ve seen pockets of layoffs, we haven’t seen widespread layoffs yet. I hope we avoid them. But the sequence we’ve seen in the past is first firms hold back on hiring, and then there’s layoffs next,” said Mahoney.
“The strength in the economy right now — to the extent there is — is the stock market, in particular, people who are invested in these ‘magnificent seven’ AI-focused stocks. For many other Americans, I think we’re already seeing warning signs. Prices are increasing. It’s harder to find jobs.”
“The bill that was passed this summer looks to make massive cuts in Medicaid and in food stamps. The Affordable Care Act exchanges that many small business owners and other working and middle-class people rely on for coverage are facing huge premium increases, which are going to squeeze budgets further. So this is a very difficult time, with higher prices, worse labor market prospects, and a social safety net that is being frankly shredded by Republicans in Congress and the Trump administration,” said Mahoney.
Rolling Back Tariffs
“The good news is that much of this is self-inflicted. If we turn the page on tariffs by locking them in or by rolling them back, I think the economy would slowly start to recover. I think the bad news is there’s been no signals of Trump changing his tune.”
”Instead, the strategy seems to be just to distract from the economy with the stunts we’re seeing in Washington, D.C., and to bury some of the less flattering data,” said Mahoney. “This environment we’re in, where tariffs are on again, off again… I understand that the administration frames this as the art of negotiation, but it’s really freezing the economy in troubling ways.”
