Then President-elect Donald Trump speaks at Carrier Corp. Dec. 1, 2016, in Indianapolis. President Trump has plans to impose high tariffs on Canada, Mexico and China.
Experts say President Donald Trump’s plans to impose high tariffs could mean higher prices, but potentially better-quality products. New tariffs could go into effect as soon as six months after Trump takes office.
During Trump’s last presidency, U.S. consumers paid more for specific goods from China, such as washing machines, solar panels and aluminum. Tariff rates ranged between 7.5 percent and 25 percent. President Joe Biden kept most of Trump’s tariffs in place, and increased the rate on some Chinese goods, such as semiconductors and electric vehicles.
A new Reuters poll predicts Trump could impose tariffs of nearly 40 percent on goods from China early this year. Prices of some Chinese products, such as clothing and electronics, are bound to increase.
Andrew Berger, president and CEO of the Indiana Manufacturer’s Association, said it’s still hard to say how higher tariffs might impact manufacturers since specific legislation has not been released yet. But since prices are generally expected to increase, higher tariffs are likely to keep businesses from putting as much money into things like expansion, purchases and hiring. Nearly 534,000 people in the state work in manufacturing.
“That's money that you don't have to give raises, to provide better health care benefits, to invest in training or equipment upgrades,” he said. “And all those things will impact the state broadly.”
Retaliatory tariffs are also a concern.
“That's just going to add to the cost of our produced goods being exported,” he said.
Indiana is one of the leaders of manufacturing in the nation. Berger said higher tariffs could restrict manufacturers and make it harder for them to purchase the raw materials they need. As a result, prices for manufactured goods, such as cars and electronics, will probably go up.
Berger said short term, companies can stockpile parts they import from abroad and revisit contracts. Long term, companies can prepare by finding more domestic suppliers and customers so they can avoid the tariffs. Tom Wininger, president of local homebuilding company Wininger Construction, said most of the materials he uses are sourced locally. But he imports lumber from Canada, plumbing fixtures and pipes from China and some HVAC parts from Korea.
“I would adapt to it,” Wininger said. “I want to keep my same high level of fixtures, but I may have to source in different places.”
Another option to prepare is to rework contracts to account for the extra costs tariffs will bring. But Wininger said he’ll pay the extra money in contracts he’s already a part of if it means consumers won’t pay that extra cost.
“I don't want to just pass it along to the home buyer,” he said. “I work every day not to make that happen. Keep the quality high and keep the price right, and it's tough.”
Larissa Adamiec, visiting clinical professor of finance at the IU Kelley School of Business, said the goal of imposing high tariffs on imported goods is to get more manufacturers to produce goods in the U.S. But there will still be a reliance on raw materials from other countries.
Adamiec spoke of Trump’s last presidency, when China weakened its currency, decreasing its value. This made China’s products cheaper than American products, and more Americans preferred those over their own.
“The advantage to devaluing the currency is then, as an American, we would then buy their products because it was cheaper than buying our own products,” she said. “So, they [China] were essentially rigging the system so that we would buy their products, as opposed to look to our own manufacturing to buy our own.”
Adamiec thinks Trump wants to avoid something similar happening again and avoid relying as much on other countries. This could result in potentially better-quality products.
“For example, I know my parents have had their refrigerator, their second refrigerator for more than two decades, maybe pushing 30 years. Okay, it's beloved in our family,” she said. “Refrigerators don't last now 30 years. People are much more quick to simply just buy a new refrigerator. The quality of a lot of our goods have gone down, and I'm hoping that a secondary benefit of these tariffs is that will force us back into a quality of the products that are made.”
Even though quality may improve, so will prices, she said. Consumers would help pay for the tariff by paying more for their products. She hopes bigger price tags will encourage people to be more intentional about their purchases, and prioritize quality products that last longer over cheaper options that aren’t as durable.
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“If we can move away from being so focused on which is the cheapest alternative versus what is the best quality for my dollar,” she said. “In economics, that would be similar to thinking about, what is the marginal utility per price, and how much utility am I actually going to get out of it?”
While home prices may increase eventually, Wininger isn’t very worried about the tariffs. He thinks Trump is raising tariffs as a negotiation tool to get other countries to lower their tariffs. Wininger sees value in being a part of the global economy.
“There's nothing I can do about it,” he said. “It's not ‘everything in the world is going to come from the United States.’ And we don't want to be isolated, really, we don't. You want to be a part of the world economy. And sometimes they just have the resources, have the labor, they want to do it better than we do. That's fine.”
Andrew Butters, associate professor of business, economics and public policy at IU’s Kelley School of Business, said higher tariffs could lead to less trade between countries, which would contribute to Trump’s goal of relying less on other countries. Businesses in countries that paid high tariffs to export goods into the U.S. during Trump’s last term — such as China — moved their business to countries where exporting into the U.S. wasn’t as expensive. This could happen again.
“As soon as you have a new set of tariffs or a new set of costs associated with having either your inputs or your employee base and everything be in one country and be shipping it to another country where your primary consumers are,” he said, “as soon as the cost of that change, firms and businesses are going to potentially rethink whether or not that that's the right or appropriate location to have their business, or to be sourcing their materials.”
Some of these firms could decide to move into the U.S., which could create more jobs, Butters said.
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“Some of those goods that I'm using to make my semiconductor or my automobile or whatever, maybe it's going to become beneficial or necessary for me to think about moving some of those otherwise upstream production processes into the United States so that results in more U.S. jobs,” he said.
