All these new tariffs could cause pain for consumers

Summary

Marketplace Morning Report: New Tariffs on America’s Top Trading Partners Could Hurt Consumers

Episode Title: All these new tariffs could cause pain for consumers
Release Date: February 3, 2025
Host: David Brancaccio, Marketplace

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Introduction: Personal Impact of Economic Policies

David Brancaccio opens the episode by sharing a personal story about his family’s experience with wildfires in California. This narrative serves as a backdrop to discuss broader economic challenges, such as rebuilding after disasters and navigating the complexities of insurance, mortgages, and contractors. This personal touch underscores the real-life implications of economic policies and environmental disasters on everyday Americans.

New Tariffs on Major Trading Partners

The episode delves into the Trump administration's latest move to impose new import tariffs on America's three biggest trading partners: Canada, Mexico, and China. Set to take effect at midnight, these tariffs include:

• Canada and Mexico: 25% tariffs on most goods.
• Canadian Oil and Gas: A lower tariff increase.
• China: An additional 10% tariff on imports.

Despite these new measures, President Trump has indicated plans to engage in discussions with leaders from Mexico and Canada to potentially mitigate some of the impacts.

David Brancaccio:
"New import taxes on Canada, Mexico and China are set for midnight, although President Trump does plan conversations with Mexico's and Canada's leaders today." [00:00]

Economic Impact on Consumers

Nancy Marshall Genzer from Marketplace highlights the immediate consequences of these tariffs on American consumers. The Tax Policy Center estimates that the average consumer’s after-tax income will decrease by $930 next year. Additionally, prices for essential goods such as cars, electronics, fruits, vegetables, and meat are expected to rise.

Nancy Marshall Genzer:
"Consumers after tax incomes would take a hit of $930 on average next year." [01:40]

Oxford Economics projects that these tariffs could elevate the unemployment rate to as high as 4.5% and temporarily increase inflation above 3%. The cost of building materials will also rise, posing significant challenges for regions like California, North Carolina, Georgia, and Florida, which are currently in the process of rebuilding after natural disasters.

Impact on the Construction and Agricultural Sectors

The construction industry faces increased costs due to higher prices for imported softwood, lumber, and gypsum from Mexico and Canada. The National Association of Homebuilders reports that over 70% of these materials are sourced from these neighboring countries.

In the agricultural sector, the American Farm Bureau Federation expresses concerns about the tariffs' adverse effects on farmers and rural communities. With 80% of potash—a crucial agricultural ingredient—imported from Canada, farmers are particularly vulnerable. Brooke Rawlins, newly confirmed Secretary of Agriculture, has suggested the possibility of using US Treasury funds to compensate affected farmers.

Energy Sector and Oil Imports

Fernando Valli, Managing Director of Energy for Hedgeye Risk Management, provides insights into the energy sector's response to the new tariffs. He explains that while the tariffs on Canadian oil are lower, the higher tariffs on Mexican oil could lead to cost increments for US refiners. However, Valli believes that both Canadian oil sellers and US refiners will absorb some of these additional costs due to existing market conditions.

Fernando Valli:
"The consumer is just stretched very thin. Not just in the U.S., I'd say globally." [04:04]

Valli also addresses claims that the US might increase oil imports from Venezuela in response to the tariffs. He dismisses this possibility, citing President Trump's stance on imposing further sanctions on Venezuela and the relatively small volume of Venezuelan oil compared to Canadian exports.

Fernando Valli:
"I sincerely doubt that... Venezuela produces just around 500, 600,000 barrels a day, versus the 3.8 million barrels a day that we import from Canada." [04:45]

Tariffs on Chinese Goods and Potential Retaliation

The Trump administration has linked the additional 10% tariff on Chinese imports to concerns over Beijing’s regulation of chemicals used in producing fentanyl. Senior officials in Beijing have signaled potential retaliation, though specifics remain unclear.

Cameron Johnson, a supply chain expert based in Shanghai with Tidal Wave Solutions, comments on the situation:

Cameron Johnson:
"Potentially a 10% does absolutely nothing." [06:14]
"Chinese manufacturers have set up factory sites abroad like in Southeast Asia, where they can, say, bypass U.S. tariffs." [06:38]

Johnson points out that Chinese manufacturers have already adapted by stockpiling raw materials and diversifying their production locations to mitigate the impact of tariffs. Moreover, China's exports to the US have remained resilient, with affordable pricing and minimal inflation outside of certain sectors like food.

China’s Defensive Strategies

Jennifer Pak reports from Shanghai, highlighting China's strategic responses to the imposed tariffs. Chinese exporters are increasingly targeting other markets to reduce dependence on the US, and the Chinese government emphasizes that no party benefits from a prolonged trade war. The effectiveness of China's retaliation will largely depend on the strength of its domestic economy, which currently shows signs of sluggishness.

Cameron Johnson:
"China's foreign Ministry says no one wins in a trade and tariff war. How hard China strikes back against the US depends on its domestic economy, which is still sluggish." [06:38]

Conclusion: Navigating Economic Challenges

David Brancaccio wraps up the episode by reiterating the significant challenges posed by the new tariffs. From rising consumer costs and potential job losses to strained international relations and strategic industry shifts, the tariffs represent a complex web of economic implications. As the US and its trading partners navigate these changes, the ripple effects will be felt across various sectors and communities.

David Brancaccio:
"The new tariffs could cause pain for the consumer... and experts are watching closely how these policies will unfold." [Throughout the episode]

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Listen to the full episode of Marketplace Morning Report wherever you get your podcasts to stay informed on the latest business and economic developments.

Transcript

[David Brancaccio]

Hi, David Brancaccio here. This week on Marketplace Morning Report, I was asked to share a personal story. My wife and I worked on a plan to move back to California with two of our offspring living in the Golden State. In November, we made that dream a reality when we purchased a cozy bungalow in the city of Altadena. Just a few weeks later, our home, along with so many thousands of others, is in ruins. Total loss. This week we return to survey what little the wildfire left and to start planning what might be next for us. I'm learning a lot, and some of it may be useful to others. Rebuilding after disaster, from cleaning up the mess to navigating insurance, mortgages, taxes to securing contractors and more. Listen to Marketplace Morning Report wherever you get your podcasts. New tariffs on America's three biggest trading partners are now about 16 hours away. I'm David Brancaccio in Los Angeles. New import taxes on Canada, Mexico and China are set for midnight, although President Trump does plan conversations with Mexico's and Canada's leaders today. Canada and Mexico get 25%. Oil and gas from Canada get a lower tariff, a jump of 10%, and there will be an extra 10% on Chinese imports. Marketplace's Nancy Marshall Genzer has more.

[Nancy Marshall Genzer]

All these new tariffs could cause pain for the consumer. Even President Trump acknowledged that last night, speaking to reporters on the tarmac as he returned to Washington from Florida.

[Cameron Johnson]

We may have short term, some little.

[Fernando Valli]

Pain, and people understand that.

[Nancy Marshall Genzer]

The Tax Policy center has quantified that pain. It says consumers after tax incomes would take a hit of $930 on average next year. Prices for things like cars, electronics, fruits, vegetables and meat are. Oxford Economics says the tariffs will cause the unemployment rate to rise as high as 4.5% and temporarily push inflation up over 3%. The tariffs will increase the cost of building materials, just as California, North Carolina, Georgia and Florida are trying to rebuild after hurricanes and wildfires. The national association of Homebuilders says more than 70% of imported softwood, lumber and gypsum for drywall come from Mexico and Canada. I'm Nancy Marshall Genser for Marketplace.

[David Brancaccio]

The American Farm Bureau Federation is saying while it supports goals of economic security and fair trade, it's worried farmers and rural communities will feel the brunt of this. The Bureau notes that 80% of a key agricultural ingredient called potash comes from Canada. Last week, at her confirmation for Secretary of Agriculture, Brooke Rawlins spoke of the idea, at least of using money from the US treasury to perhaps help compensate US Farmers for the effective tariffs. The higher Import taxes on Canadian and Mexican oil and gas are set to come At a time the market price of crude oil has been relatively cheap in the 70 to $80 a barrel range. Fernando Valli is managing director of energy for the investment firm Hedgeye Risk Management. Welcome.

[Fernando Valli]

Pleasure to be here.

[David Brancaccio]

The oil that would come in from Canada is subject to a lower increase in tariffs. The higher tariff applies to Mexican oil. You expect a price shock.

[Fernando Valli]

I don't. I think at the end of the day, the sellers of oil, especially the Canadian ones, are going to have to eat some of costs and the refiners in the US Will have to eat some of those costs. Because if you look at it, Canada produces just around four and a half million barrels a day of crude oil, of which 3.8 million barrels a day are exported to the US and the issue is there aren't a lot of pipelines that take that oil from Canada to their to its coasts. Most of it has to go through.

[David Brancaccio]

The US Why wouldn't a Midwest oil refiner that is stuck taking in the more expensive Canadian crude, why wouldn't they just pass on the cost?

[Fernando Valli]

It may just be that the consumer itself will say, we're going to consume less gasoline, less diesel. And in fact, we're seeing that without the tariffs. 2024 was not a great year for gasoline demand. And that was reflected on the refining stocks and on their margins. And on the diesel side, it was slightly down. So altogether, it's hard for them to push higher prices because the consumer is just stretched very thin. Not just in the U.S. i'd say globally.

[David Brancaccio]

Canada's foreign minister told the Financial Times that the expectation is the US Would buy more crude oil from Venezuela in this higher tariff situation. What do you make of that?

[Fernando Valli]

I sincerely doubt that. Trump has been very outspoken about putting more sanctions on Venezuela, so that heavy crude is not going to be an option for US Refineries. And even then, you know, Venezuela produces just around 500, 600,000 barrels a day, versus the 3.8 million barrels a day that we import from Canada. So there's a huge discrepancy there.

[David Brancaccio]

Fernando Valli is managing Director of Energy for HedgeEye Risk Management. Thank you very much.

[Fernando Valli]

My pleasure.

[David Brancaccio]

The Trump administration is connecting part of the additional 10% import tax on Chinese goods to its view that Beijing is not cracking down enough on the chemicals it produces to make the widely abused drug fentanyl. A range of senior officials in Beijing have promised retaliation for the tariff increase, but the form of any retaliation has yet to take shape. Marketplaces Jennifer Pak has more from Shanghai.

[Cameron Johnson]

China's exports to the US already face punitive tariffs. These were imposed in 2018 under President Trump's first administration and continued under President Joe Biden's. Now the US wants to add an additional 10% levy on goods.

[David Brancaccio]

Potentially a 10% does absolutely nothing.

[Cameron Johnson]

That's Cameron Johnson, a Shanghai based supply chains expert with Tidal Wave Solutions. He says manufacturers have stocked up on raw materials and experts a lot more ahead of the new tariffs. Plus, Chinese goods are very affordable.

[David Brancaccio]

The reality is that inflation in China hasn't really happened outside of perhaps food.

[Fernando Valli]

And a few other goods.

[Cameron Johnson]

Chinese manufacturers have also set up factory sites abroad like in Southeast Asia, where they can, say, bypass U.S. tariffs. China's exporters have also expanded to other markets to rely less on the U.S. but China's foreign Ministry says no one wins in a trade and tariff war. How hard China strikes back against the US Depends on its domestic economy, which is still sluggish. In Shanghai, I'm Jennifer Paak for Marketplace.

[David Brancaccio]

Thanks, Jennifer. In Los Angeles, I'm David Brancaccio. You're listening to the Marketplace Morning report from apm, American Public Media.