When will prices start rising due to Trump’s new tariffs?

“In many cases, the friend is worse than the foe in terms of trade,” Donald Trump said as he revealed sweeping tariff hikes on dozens of countries.

On Thursday (IST), the US President followed through on his long-standing tariff threats, announcing a 10% baseline tax on imports from all countries while raising tariffs on nations that run trade surpluses with the United States.

ALSO READ | Why Trump slapped 10% tariff on region where ‘no one lives’

Trump presented these reciprocal tariffs as a key campaign pledge, arguing that increasing US taxes on foreign goods would offset what he claims are unfair tariffs imposed on American products by other nations.

He insisted the move would generate hundreds of billions in new revenue for the US government while ensuring fairer global trade.

“Taxpayers have been ripped off for more than 50 years,” he said. “But it is not going to happen anymore.”

Trump justified the tariffs by declaring a national economic emergency . He claimed the measures would bring back factory jobs to the United States, though critics warn they could lead to an economic slowdown as businesses and consumers face higher costs.

Notably, Trump has imposed a 26% “discounted reciprocal tariff” on India - half of the 52% that he says India applies to US goods.

However, India’s tariff rate remains lower than some other Asian nations. The US has slapped 34% on China, 46% on Vietnam, 36% on Thailand, and 32% each on Indonesia and Taiwan.

These new tariffs add to previous levies, including a 25% tax on auto imports, trade penalties on China, Canada, and Mexico, and extended tariffs on steel and aluminium. Trump has also imposed tariffs on countries importing oil from Venezuela and plans separate taxes on pharmaceuticals, lumber, copper, and computer chips.

With the new tariff policy in place, how quickly will consumers feel the impact?

Understanding all the details can be tricky, so we have broken it down for you. Below are answers to common questions about reciprocal tariffs that should clear up any confusion.

How soon will prices rise as a result of the tariff policy?

The impact on prices will depend on how businesses in the United States and abroad react, but consumers could start noticing higher costs within a month or two of the tariffs being implemented. For some goods, like fresh produce from Mexico, price increases might happen even sooner.

Some US retailers and importers may absorb part of the tariff costs, while foreign exporters might lower their prices to compensate for the added duties. However, for many businesses, the tariffs announced by Trump, such as the 20% levy on imports from Europe, will be too steep to handle without passing the cost on to consumers.

Companies might also use the tariffs as an opportunity to increase prices. When Trump imposed duties on washing machines in 2018, studies later found that retailers raised prices not only on washing machines but also on dryers, despite dryers not being subject to any new tariffs.

ALSO READ |  Takeaways from Trump’s ‘Liberation Day’ announcement

One key concern in the coming months is whether the same pattern will occur again. Economists warn that after experiencing the highest inflation surge in four decades, consumers may have become more accustomed to rising prices than they were before the pandemic.

At the same time, there are indications that many Americans, frustrated by the rising cost of living, are less willing to accept further price hikes and may simply reduce their spending. This could make businesses more cautious about increasing prices too aggressively.

Do US-collected tariffs go into the General Revenue Fund? Can Trump withdraw money from that fund without oversight?

Tariffs are taxes on imports, collected when foreign goods cross the U.S. border by the Customs and Border Protection agency. The money — about $80 billion last year — goes to the U.S. Treasury to help pay the federal government’s expenses. Congress has the authority to say how the money will be spent.

Trump — largely supported by Republican lawmakers who control the U.S. Senate and House of Representatives — wants to use increased tariff revenue to finance tax cuts that analysts say would disproportionately benefit the wealthy. Specifically, they want to extend tax cuts passed in Trump’s first term and largely set to expire at the end of 2025. The Tax Foundation, a nonpartisan think tank in Washington, has found that extending Trump’s tax cuts would reduce federal revenue by $4.5 trillion from 2025 to 2034.

Trump wants higher tariffs to help offset the lower tax collections. Another think tank, the Tax Policy Centre, has said that extending the 2017 tax cuts would deliver continued tax relief to Americans at all income levels, “but higher-income households would receive a larger benefit.’’

What is the limit of the executive branch’s power to implement tariffs? Does Congress not play any role?

The U.S. Constitution grants the power to set tariffs to Congress. But over the years, Congress has delegated those powers to the president through several different laws. Those laws specify the circumstances under which the White House can impose tariffs, which are typically limited to cases where imports threaten national security or are severely harming a specific industry.

In the past, presidents generally imposed tariffs only after carrying out public hearings to determine if certain imports met those criteria. Trump followed those steps when imposing tariffs in his first term.

ALSO READ |  Trump’s 26% discounted tariffs on India lower than China, Vietnam: Is this a reason to cheer?

In his second term, however, Trump has sought to use emergency powers set out in a 1977 law to impose tariffs in a more ad hoc fashion. Trump has said, for example, that fentanyl flowing in from Canada and Mexico constitute a national emergency and has used that pretext to impose 25% duties on goods from both countries.

Congress can seek to cancel an emergency that a president declares, and Sen. Tim Kaine, a Democrat from Virginia, has proposed to do just that regarding Canada. That legislation could pass the Senate but would likely die in the House. Other bills in Congress that would also limit the president’s authority to set tariffs face tough odds for passage as well.

What tariffs are other countries charging on US goods?

U.S. tariffs are generally lower than those charged by other countries. The average U.S. tariff, weighted to reflect goods that are actually traded, is just 2.2% for the United States, versus the European Union’s 2.7%, China’s 3% and India’s 12%, according to the World Trade Organisation.

Other countries also tend to do more than the United States to protect their farmers with high tariffs. The U.S. trade-weighted tariff on farm goods, for example, is 4%, compared to the EU’s 8.4%, Japan’s 12.6%, China’s 13.1% and India’s 65%. (The WTO numbers don’t count Trump’s recent flurry of import taxes or tariffs between countries that have entered into their own free trade agreements, such as the U.S.-Mexico-Canada Agreement that allows many goods to cross North American borders duty-free.)

Yet the Trump administration has used its own calculations to come up with far greater tariffs that they say other economies impose on the U.S. For example, the White House said Wednesday that the European Union’s effective tariffs on the U.S. equal 39%, far higher than the WTO’s numbers. It says China’s equal 67%.

Previous U.S. administrations agreed to the tariffs that Trump now calls unjust. They were the result of a long negotiation between 1986 to 1994 — the so-called Uruguay Round — that ended in a trade pact signed by 123 countries and has formed the basis of the global trading system for nearly four decades.

With inputs from AP