In what ways do tariffs impact prices?
President Trump has enacted or signaled the potential for tariffs on various goods and nations. What additional costs will consumers incur? The inquiry presents a surprisingly complex challenge to address. For instance, imposing a 10% tariff on footwear imported from China would likely increase their retail price by approximately 4%, whereas the same tariff on wine or olive oil from Italy could result in a nearly 10% rise.
What accounts for the disparity? Tariffs are not the sole element influencing the situation. The fluctuations in currency, the presence of alternative options, and the pricing tactics employed by both producers and importers are all significant factors at play. The entirety of this situation influences the concept of “pass-through”—the extent to which a tariff is ultimately borne by the consumer.
The Wall Street Journal commissioned Moody’s, a prominent economic-research firm, to analyze the potential impact of various tariffs on the prices of a diverse array of household goods sourced from multiple countries. The Journal subsequently assessed those effects against standard prices observed in online markets. The findings provide a demonstration—not a forecast—of the potential impact of tariffs on consumer prices.
In this analysis, Moody’s has implemented tariffs of 25% on imports from Mexico and Canada, consistent with Trump’s announcement, alongside a 10% tariff on all other imports. Trump has instituted a further 10% tariff on China and has declared an additional 10% levy. “Numerous mechanisms exist through which tariffs influence prices and the broader economy,” remarked Mark Zandi, chief economist at Moody’s. “The subsequent ramifications are occasionally counterintuitive.”A product characterized by high competition within its commodity market. According to Moody’s analysis, imposing a 10% tariff on a tablecloth imported from India would result in a modest increase in the final price, rising from $25.99 to $26.51, or a mere 2% adjustment. The pass-through of tariffs on tablecloths imported from India remains constrained, as numerous countries engage in intense competition for the expenditure of American consumers.
The variety of options available accounts for the diminished impact when considering household linen prices overall, which stands at 0.8%. Consumers exhibit a notable indifference regarding the origins of products or the identities of their manufacturers. The prices of commodity-like consumer goods in retail settings tend to remain stable and are not significantly affected by fluctuations in tariffs alone. It is likely that a similar situation applies to apparel, automotive spare parts and accessories, as well as certain widely used cosmetics.
The increase in prices for Italian wine has a limited impact on consumption; a devoted aficionado of a specific Chianti is often hesitant to make a substitution. Sellers are inclined to transfer the entirety of the 10% tariff, operating under the assumption that customer attrition will be minimal. A 10% tariff on a $21.99 bottle imported from Italy would increase its price nearly by the entire 10%, resulting in a new cost of $24.08. Italian wine remains a specialized offering, representing a modest fraction of overall wine consumption in the United States. Consequently, its influence on the aggregate price of wine is limited to a mere 0.3%.
This example demonstrates the manner in which tariffs imposed on a single product can lead to increased prices across the entire category. A winemaker in California is likely to increase her prices, thereby securing higher profits. Provided that her newly established price remains below that of the tariffed option, she may capture a portion of the market share. The wine wholesaler assumes a significant role as well. Confronted with an increased import cost for Italian wine due to newly imposed tariffs, the wholesaler may opt to elevate prices for alternative wines in his inventory to offset the diminished profit margins on the Italian selections. He may alternatively choose to absorb the lost profit from the tariff, aiming to capture market share from rivals who opt to transfer the price increase to consumers.
Tariffs exert their most pronounced impact in scenarios where either imported or domestic substitutes are lacking, or when the product in question carries a notable premium. Despite the potential for tariffs to increase the cost of the latest iPhone, it is likely that enthusiasts of the brand would continue to make the purchase. Video game consoles and their accompanying software can be classified within a comparable framework. The videogaming landscape is largely controlled by a select few entities, predominantly Nintendo, Sony, and Microsoft. A significant number of physical gaming consoles are manufactured in China, and players are unlikely to simply replace their devices to continue their gaming experience. This situation empowers producers and importers to significantly increase prices for consumers as a means to mitigate the impact of tariffs. According to Moody’s analysis, it is anticipated that almost the entirety of a 10% supplementary tariff on game consoles imported from China would be transferred to consumers, resulting in an increase in the price of a $500 device to $548.
In 2024, Mexico emerged as the leading foreign supplier of passenger cars and sport-utility vehicles to the United States, representing 23% of total imports. Imposing tariffs on automobiles produced in Mexico is expected to result in increased prices not only for vehicles imported from across the border but also for all cars, as manufacturers and dealers seize the opportunity to enhance profit margins while expanding their market presence. This dynamic is expected to manifest across a variety of products, including home appliances. In 2018, the imposition of tariffs on washing machines resulted in a notable increase in prices, affecting not only washing machines themselves but also the cost of dryers. The two are generally purchased in tandem, prompting retailers to capitalize on the potential for increased revenue.
The research indicated that prices for domestically produced washers, in addition to those imported, have increased. This rise can be attributed to manufacturers elevating their prices in response to escalating labor costs and tariffs on imported components, as well as to align with the price increases of foreign machines. In the interim, manufacturers in the United States anticipate that tariffs imposed on intermediate components, including steel and aluminum, will ultimately be reflected in final pricing. The Moody’s analysis does not account for those effects. However, they do exist.
