Food, gas and cars could quickly get pricier under Trump’s tariff plan

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A new wave of tariffs could quickly reignite inflation on food, gas and automobiles, just as Americans were finally starting to catch a break from fast-rising prices.

President-elect Donald Trump said this week that he would impose sweeping tariffs on goods imported from Mexico, Canada and China as soon as he takes office. The result, economists say, would probably be a swift run-up in prices on necessities like meat, fruits and vegetables, along with cars, clothing and crude oil – all of which play an outsize role in family budgets.

The blowback for consumers could be significant at a time when households are already reeling from years of rising prices. Even though inflation has moved closer to normal levels lately, spikes in the wake of the pandemic pushed up the cost of new cars, groceries, utilities and housing by at least 20 percent in four years, outstripping pay increases in the same period. Discontent with inflation has soured Americans’ view of the economy and played a major role in Trump’s presidential win.

“The biggest takeaway from this election was that Trump won because people really hated inflation; they hated seeing prices rise,” said Alex Durante, an economist at the Tax Foundation, a right-leaning think tank. But, he said, Trump’s proposed policies could quickly make that situation worse. “Tariffs make things more expensive. They shrink the economy, and they make people poorer.”

Members of Trump’s transition team have pushed back against the idea that tariffs would spark widespread inflation. Even if some prices rise, those increases would be offset by lower demand elsewhere, Treasury Secretary pick Scott Bessent said in a recent radio interview.

“Tariffs can’t be inflationary because if the price of one thing goes up, unless you give people more money, then they have less money to spend on the other thing, so there is no inflation,” he told Larry Kudlow on Saturday. “The inflation comes through either increasing the money supply or increasing the government spending, and that’s what happened under Biden.”

A Trump transition spokeswoman, Karoline Leavitt, said the new administration would not send prices up.

“In his first term, President Trump instituted tariffs against China that created jobs, spurred investment, and resulted in no inflation,” she said in a statement, promising “lower inflation” in Trump’s second term.

Still, Philip Cole, co-owner of Bisou Tea in Toronto, was caught off-guard by Trump’s promise Monday of a 25 percent tariff on Canadian imports. He is “unsettled and bracing for the worst,” he said – which, for now, means finding ways to mitigate what would be a sudden price hike for retailers across the United States that carry his products.

“We’ll try to absorb some of the cost, but 25 percent – that is massive,” Cole said. “This will spread through, and it will mean higher prices for everyone. There are no winners here.”

Longer term, Cole is rethinking his ties to the United States altogether. Although U.S. sales make up roughly half of his annual revenue, he’s now shifting his focus to Europe and Britain, where he hopes the trading outlook is more stable.

“It’s been a real surprise that our closest ally and trading partner would go in a direction that would be so devastating to both economies,” he said.

Wall Street banks and others have begun revising economic forecasts in the wake of Trump’s announcement. Deutsche Bank estimates that one measure of inflation – now at 2.8 percent – could rise to as much as 3.9 percent next year if the new tariffs are enacted, up from original estimates of about 2.5 percent. The bank’s economists noted Trump’s “potentially conflicting economic policy goals.”

Meanwhile, the Tax Foundation expects the tariffs to shave off 0.4 percent from U.S. gross domestic product and result in nearly 345,000 job losses.

Mexico and Canada – which Trump blamed for a flow of illegal drugs and undocumented immigrants – have been largely exempt from tariffs as part of a trade agreement negotiated during Trump’s first administration. That’s made them a popular destination for major corporations looking to “nearshore” manufacturing and other operations. Companies such as Whirlpool, Honeywell Aerospace and General Motors have spent millions to expand production in Mexico since the pandemic. Canada, meanwhile, is the source of 99 percent of U.S. natural gas imports.

“I don’t think most people realize the significance of economic trade with Mexico,” said Alan Russell, chief executive of the Tecma Group of Companies, which helps businesses set up and run factories in Mexico. “Our lawn mowers, our kitchen appliances, our cars – none of that can happen without Mexico.”

Still, he said, it isn’t clear whether the 25 percent tariffs are a done deal or just the first step in a back-and-forth with the country’s largest trade partners. Leaders in both Mexico and Canada have responded to Trump, and discussions are likely to continue in the coming weeks, people close to the president-elect have said.

If the tariffs do go forward, Heather Peterson, who owns a clothing boutique in Winona, Minnesota, worries that it would be difficult to stay in business. Nearly everything in her shop – from $16 baseball caps to $78 jeans – is made in China, and having to raise prices, even by a little bit, would put items out of reach for the area’s blue-collar workers, she said.

“I try to keep my prices as low as I can because people are already struggling; they don’t want to pay $34 for a freaking sweater,” Peterson said. “If there are more tariffs on top of this, then we’re really screwed. There’s just no way around it: Everything is made in China, especially if it’s affordable.”

In Alabama, Eric Bauer is preparing to raise prices on his wide-brimmed hats, which sell for $17 to $50 at travel centers and hardware stores. Until Monday, Bauer was planning to move more production from China to Mexico to avoid tariffs and speed up shipping times. Now, with Mexico also in the crosshairs, he’s scrambling for a new plan, talking with suppliers in Bangladesh, Cambodia and Vietnam. But he says a large-scale shift in production would take months.

“We really don’t want to raise prices, but if we get hit by this new tariff we’re going to have to pass that on,” said Bauer, chief executive of Turner Hat Company. “There is just so much that’s up in the air.”

For some consumers, the uncertainty is already causing financial anxiety right as the holiday shopping season starts. In Georgetown, Texas, James and Kayli Lyda are cooking more meals at home and recently got a Costco membership in anticipation of tariff-related price hikes. Almost all of the meat and produce they buy at the local supermarket comes from Mexico, James said. The couple spends about $300 a month on groceries, and an extra $200 on beef, chicken and bones for their two young Shiba Inus.

“I was just starting to notice prices coming back down and now, it’s like, here we go again,” said James, 40, who recently found an IT job after a layoff. “We’re trying to save up for a house, but with the way inflation has been, it hasn’t been possible.”