The tariffs that United States President Donald Trump seeks to impose on Mexico and Canada will have a significant impact on the cost of living for Americans.
Much has been written about the topic, but to better understand what tariffs are and how they impact, several specialists estimate that these tariffs will increase the cost of essential products such as housing, automobiles, energy, and food, disproportionately affecting low-income households.
What will be the impact of tariffs on the cost of living?
The IMCO analysis estimates that each American household could face an increase of between $2,500 and $4,300 per year due to tariffs.
Additionally, households could experience a reduction of $930 in net income after taxes by 2026, according to a study by the Tax Policy Center.
How will tariffs affect the housing sector?
According to the National Association of Home Builders (NAHB), the construction sector will be severely impacted by the rising costs of key materials:
- Softwood lumber: 70% of imported lumber comes from Canada and will have a 25% tariff, adding to an existing 14.5% tariff.
- Gypsum (drywall): Mexico is the main supplier of this essential construction material, and the 25% tariff will significantly increase costs.
- Labor: Trump’s immigration policy could reduce the availability of construction workers, driving up labor costs.
With a housing crisis and prices that have increased 40% since 2020, tariffs will only worsen housing affordability.
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How much will car prices increase with Donald Trump’s tariffs?
The automotive industry heavily depends on imported auto parts. 50% of auto parts used in vehicle manufacturing in the U.S. come from Mexico and Canada. An analysis by Michael Hicks, an economist at Ball State University in Indiana, reveals that price increases could impact as follows:
- Sedans: Estimated increase of $2,000 per unit.
- SUVs and trucks: Models with higher electronic content could become up to $5,000 more expensive.
- Fewer options for consumers: Supply chain disruptions could reduce the availability of new cars.
How will tariffs impact energy prices?
The U.S. heavily relies on Canada and Mexico for its energy supply. An article published by the Council on Foreign Relations reveals some of the potential impacts:
- Oil and gas: Canada and Mexico supply 69% of the crude oil imported by the U.S., and tariffs could increase gasoline prices by up to 50 cents per gallon.
- Natural gas: The U.S. imports 9% of its supply from Canada, which will impact domestic utility rates.
- Electricity in New England and New York: These regions depend on Canadian hydroelectric power, which will now have a 10% tariff.
The rising cost of energy will affect households and businesses, increasing production costs for goods and services.
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Which grocery products will be more expensive?
The U.S. imports a significant amount of agri-food products from its trade partners, mainly Mexico. According to the Council on Foreign Relations:
- Vegetables and fruits: Mexico supplies 60% of fresh vegetables and nearly half of the fruits and nuts imported by the U.S.
- Maple syrup: Canada produces 75% of the global supply and will now be subject to a tariff.
- Grains and cereals: The U.S. imports $17 billion in wheat and other grains from Canada, affecting the prices of bread, pasta, and beer.
The increase in food prices will especially impact low-income households, which allocate a larger portion of their budget to food.
Will online shopping also become more expensive?
One of the most notable changes is the elimination of the tax exemption for online purchases under $800, which will affect platforms like Temu and Shein.
- A U.S. Congressional report indicates that 30% of imported packages in the U.S. come from these platforms and will now be taxed.
- Consumers will see price increases on clothing, gadgets, and cheap furniture that previously benefited from low prices due to the exemption.
Tariffs, a major blow to consumers’ economy
Donald Trump’s tariffs could lead to a widespread increase in prices, affecting American households’ economies. Some of the expected consequences include:
- Drop in imports: The new tariffs are expected to reduce imports by 15%, affecting the availability of goods and market competition.
- Impact on inflation: Additional costs will be passed on to consumers, driving up prices for key products such as cars, food, and gasoline.
- Higher tax revenue, but at a high cost: Although tariffs will generate around $100 billion annually in additional revenue for the federal government, the economic damage could be greater due to supply chain disruptions and job losses.
- The Federal Reserve estimates that companies exposed to tariffs have reduced their workforce by 1.4% and increased prices by 4.1%.
- The Tax Foundation estimates that tariffs will generate $1.2 trillion in tax revenue between 2025 and 2034, but in the long run, they will reduce U.S. GDP by 0.4% and eliminate 344,900 jobs
