Are you concerned about tariffs, trade wars and financial uncertainty? Whether you support or oppose the Trump administration’s economic policies, you might be trying to understand how these issues could impact your finances.
From avocado prices and stock market volatility to small business implications and housing costs, we turned to experts for their insights into what a global trade war might mean for your wallet.
What Is a Tariff, Anyway?
First, let’s start with what a tariff isn’t: It’s not a tax on the country sending the goods, says Paul Johnson, adjunct professor at Fordham University’s Gabelli School of Business.
“Very simply, a tariff means that at the border where the plane lands or the truck crosses, someone is paying more money to bring that item into the country, and it’s usually the importer,” he says.
For example, if Walmart imports goods from China, when that shipment arrives, Walmart will pay 10% more for those items because of the 10% tariff on China. Walmart then has three main choices: It can absorb all of the extra cost, pass the full cost to the consumer or share the cost, Johnson says.
In most cases, prices will likely tick up at least a bit but not necessarily the full 10%. In the meantime, the U.S. government collects that additional 10% revenue.
The other piece to this is that if other countries place retaliatory tariffs on U.S. goods, our exporters could lose revenue if countries pull back on their orders. “Historically, there’s overwhelming evidence over the last 200 years that tariffs are a bad idea,” Johnson says.
However, one must also consider them in combination with the new administration’s other, pro-growth policy ambitions, says Adam Hetts, chartered financial analyst and global head of multi-asset at Janus Henderson Investors.
“In the current situation, it’s also a possibility that the real goal of tariff threats is to reach new trade agreements that improve, and not restrict, the U.S. economy,” he says.
[READ: What Will Cost Most Under Trump’s Tariffs?]
China Tariffs Could Mean Price Changes, But Will It Matter?
The number-crunchers at the Tax Foundation estimate that the threatened tariffs on Mexico, Canada and China would reduce after-tax incomes of Americans by 0.8% in 2025, on average — or $800 on a $100,000 income.
As of publication time, the Mexico and Canada tariffs are on pause, so if just China stays in play, the financial impact would be even less than that.
Whether or not you feel the pain of China tariffs, though, largely depends on the types of shopping you do, Johnson says.
“If you think about where people spend most of their money, it’s rent, transportation and food, and China doesn’t really affect any of that,” he says.
“The cost of a flat-screen TV is going to go up, the price of shoes is probably going to go up. Things like that could be more expensive, but most people won’t notice that,” he adds.
If Canada and Mexico tariffs do end up being enacted, that could drive up the price of specific grocery items like avocados and maple syrup. But perhaps more worrisome is that potentially higher lumber costs — since it’s a major Canadian import — could make homebuilding in the U.S. more expensive.
[READ: Trump’s 2025 Tax Plans: Experts Weigh in on What Could Happen]
Downstream Trade War Effects
Besides minimal increases in the price of random toys or electronics from China, a continuing and more expansive global trade war could have far-reaching impacts on everything from your job security to your 401(k).
Jobs
“If countries decide to retaliate and add tariffs on American goods, that’s going to make American goods more expensive, which means we are going to sell fewer of them. So that’s going to hurt domestic production as well,” says Michael Coon, Ph.D. associate professor of economics in the Sykes College of Business at the University of Tampa.
Tariffs could also have an impact on specific sectors, such as manufacturing companies. “People who work at firms that have become dependent on China for input products they use to make their products may be forced to lay off some people,” Johnson says.
On the other hand, there is an argument to be made that raising prices on some products from China can motivate consumers to buy more U.S. goods, which can help with job creation. “Although this only works if there are domestic substitutes,” Hetts says.
Made in the U.S.A. Businesses
Lumped into the ongoing trade discussions is the U.S. decision to eliminate the de minimis tax exemption, which previously allowed imports valued at $800 or less to avoid taxation.
This is why companies like Shein and Temu have been able to offer Americans super low-price products. But with this exemption going away, it opens up a lot of opportunities for U.S.-based small businesses, says Robert Cannon, financial advisor at Experity Wealth.
“Anything that is American-made or handmade can offer more competitive prices now, so that’s an overall benefit to the economy,” he says.
[Related:Fast Fashion: A Trend That May Cost More Than You Think]
The Markets
As we saw before the Canada and Mexico tariffs were pulled back, the markets react to economic uncertainty.
“Depending on your time horizons, if you are not about to retire and you’re in your accumulation phase, you can probably stay in the market and not worry so much,” Cannon says.
However, you might want to speak to your financial advisor about changing your allocations or shifting your investments to lower your risk.
“Think about the sectors that are going to benefit [from tariffs] and look at ETFs that follow those sectors,” Cannon says. “Those returns can offset whatever is happening to your local prices.”
Overall, Coon says, proceed with caution, look at the overall picture and don’t make any rash decisions about your long-term investments.
“Panic selling is very dangerous. We saw that in the Great Recession in 2008 where people sold everything at the bottom point,” he says.
Tune Out the Trade War Noise
After a period of high inflation, you might be nervous about any new policies that could squeeze your budget even more, but Johnson says there’s no reason to panic or dramatically change your financial habits.
“As these things ripple through, they could have an impact in isolated spots, but many people may not even notice any differences,” he says. “Once you filter out the rhetoric, you’ll realize that it’s not really going to affect your life too much.”
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What a Trade War Under Trump Would Mean for Your Finances originally appeared on usnews.com
