Prices skyrocket How Trump's tariffs will affect five domestic industries

Not all of the consequences of Trump's tariff decision will be felt quickly, say US companies. But they will come - and drive up prices.

DPA

03.02.2025, 11:55

03.02.2025, 16:54

dpa

An ice cream store in California, a medical equipment company in North Carolina, a T-shirt retailer in Michigan, a fruit and vegetable supplier in Arizona: companies in all parts of the USA are preparing for the consequences of the tariffs imposed by President Donald Trump on imports from Mexico, Canada and China.

The tariffs announced by decree on February 1 - 25% on most goods from neighboring US countries and 10% on all imports from China - come into force tomorrow, Tuesday. For Canadian energy products such as oil, natural gas and electricity, Trump has also set a lower tariff of ten percent.

Loss of purchasing power of up to 1,200 dollars

Mexico and Canada immediately announced retaliatory tariffs, in the latter case 25 percent on imports worth up to 155 billion dollars (around 142 billion Swiss francs). China also wants to respond with "necessary countermeasures" and file a complaint with the World Trade Organization (WTO).

According to estimates by the Budget Lab, a research center at Yale University, US households are likely to lose 1000 to 1200 dollars a year in purchasing power due to expected price increases as a result of the tariffs.

Gregory Daco, chief economist at the tax and consulting firm EY, expects Trump's tariffs to push up inflation, which amounted to 2.9 percent on an annualized basis in December, by 0.4 percentage points this year.

He also predicts that the US economy, which grew by 2.8 percent in 2024, will contract by 1.5 percent this year and 2.1 percent in 2026 as higher import costs dampen consumer spending and corporate investment.

Penny Ice Creamery in Santa Cruz, California, has repeatedly had to raise its prices in recent years as rising inflation has made supplies more expensive. He was sorry about these constant price increases, said co-owner Zach Davis. "We were looking forward to inflation coming down in 2025. Now, with the tariffs, we could see a relapse again."

In particular, Davis worries that the tariffs will drive up the cost of mostly Chinese-made refrigerators, freezers and blenders - equipment he'll need if Penny Ice Creamery goes ahead with its plan for a seventh store.

The new tariffs will even raise the price of popular colorful sprinkles on the ice cream, which the store imports from Canada. That may sound paltry, but it can hurt a small business like this one. "The profit margins are so small," Davis says.

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Casey Hite is CEO of Aeroflow Health in Asheville, North Carolina. He expects his company to take a hit because it relies on more than 50 percent of its products, such as breast pumps, from Chinese manufacturers.

He then supplies them to American patients via their health insurers, who pay Aeroflow Health. The catch: the rates were negotiated before Trump's tariff decision.

Davis fears that his company will either be forced to buy cheaper, lower quality products from somewhere else or pass the extra costs on to consumers in the form of higher health insurance premiums.

Even the incontinence pads that the company buys in the USA are not safe from Trump's import tariffs. This is because they probably contain paper pulp from Canada and plastic and packaging material from China, as Aeroflow Health says.

"Will [the tariffs] affect our business? You betcha," says Linda Schlesinger-Wagner, owner of Skinnytees, a women's apparel company in Birmingham, north of Detroit in the US state of Michigan.

She imports goods from China and anticipates higher costs due to the 10 percent duty, but wants to absorb the extra expense instead of shifting it to customers.

"I don't like what's going on," the businesswoman says of tariffs in general. "I think people are going to be really shocked at the pricing they're going to see on cars, on lumber, on clothing, on food."

Many companies have built up stocks of imported goods as a precautionary measure, which they can draw on for the time being, says William Reinsch, a former trade official. This applies to the construction industry, for example, where companies have been stockpiling material in anticipation of Trump's customs decree, says George Carillo from the Hispanic Construction Council.

But he worries that inflation could skyrocket in three to six months. If stocks get low, "we'll start to feel the effects". And then there's Trump's crackdown on illegal immigrants.

A shortage of labor due to deportations combined with higher prices could lead to major delays in construction projects, Carillo warns.

There are also sectors that cannot stockpile goods, such as supermarkets, whose agricultural products would spoil. The effects of the tariffs will therefore be visible on store shelves within days. "You don't hoard avocados. You don't hoard cut flowers. You don't hoard bananas," says Reinsch.

In the Nogales tomato trading center in Arizona, fruit and vegetable supplier Rod Sbragia is worried about the future. He believes that import tariffs could force some distributors out of business, which would be "detrimental to American consumers, to the choice they have in the supermarket".

Sbragia has voted for Trump in the last three elections, calling himself a "staunch Republican", but in this case, he says, the president must not have been properly advised.

US farmers are also likely to feel the effects of the tariffs. Trump's supporters in rural areas represent a tempting target for retaliatory tariffs. Just as in Trump's first term, when countries affected by tariffs at the time retaliated with their own import tariffs on goods such as soybeans and pork.

Back then, Trump spent billions of dollars of taxpayers' money to compensate US farmers for losses - and many of them are counting on him to take care of them this time too.