‘Incredibly stupid’: Trump’s tariffs set to cost consumers $2600

The cost of living is set to rise under the Trump administration if the newly elected President passes his tariffs plan on in full.

The average American is set to be $2600 worse off due if US President-elect Donald Trump carries out his plan to slap tariffs on imports, which could eventually hit the hip pockets of Australians.

Mr Trump, who decisively won this week’s presidential election against Kamala Harris, has said he plans to install a blanket tariff of 10 to 20 per cent across every country, with additional tariffs of 60 to 100 per cent for goods imported from China.

He said it was a way of extracting money from rival nations, although economists disagree.

According to the National Retail Federation in the US, Mr Trump’s tariff plan to raise prices on imported products would cost consumers “between $46bn and $78bn in spending power” on basic goods including apparel, toys, furniture, footwear and household appliances.

Put another way, independent economist Saul Eslake said the average American would spend $2600 more a year on the basics.

“Economists have predicted that the Trump proposals, if implemented in full, will add about $2600 to the average family’s average cost of living,” Mr Eslake said.

“Ultimately the burden of tariffs are borne by consumers.”

Donald Trump’s expected trade war is likely to add thousands of dollars to consumers. Picture: NewsWire/Bianca De Marchi

What is a tariff?

A tariff is a tax imposed by a government on goods and services imported from other countries, with the aim to increase the price of the imported goods to make it either less desirable or at least less competitive against domestic goods and services.

Mr Eslake said tariffs had been falsely sold and would actually hurt the very people they are supposed to be protecting.

“There isn’t any benefit to the US and that is why it is so stupid,” Mr Eslake said.

“People think it is something foreigners pay but it is completely wrong.”

Mr Eslake said tariffs were sold due to the public believing it would protect local industries and would reduce the nation’s deficit.

“All tariffs will do is raise prices. The only way it will reduce the deficit overall is if it reduces economic growth,” Mr Eslake said.

“Tariffs are not something that governments make foreigners pay to get their goods into the country, they are something they make their own consumers pay to keep foreign goods out of the country.

“The right word to use is tax, as it’s a tax on consumers. These taxes will bear disproportionality on lower income earners.

“This is because cheap Chinese goods will typically account for a bigger share of a low income earner over a high income earner.”

AMP economist Diana Mousina said the total impact internationally was unknown as it all depended on the details of the tariff plans.

“There is a well known saying now that we should ‘take Trump seriously but not literally’ and giving direct point forecasts right now about the impact of the Trump administration on the economy is fraught with problems,” Ms Mousina said.

Donald Trump, the day after the 2024 presidential election. Picture: X

Impact on Australia

In the short-term the Trump tariffs are unlikely to have much of an impact on Australia and shouldn’t slow the Reserve Bank’s rate cutting cycle, despite fears of an inflation spike.

But over the longer term, Mr Eslake said other countries would impose tariffs back on the US in retaliation.

“There is a strong likelihood other countries will retaliate against Trump’s tariffs and that is incredibly stupid,” he said.

“In effect it is countries saying if you’re going to shoot yourself in the foot and hurt your consumers, well I will shoot myself in the foot and hurt my consumers.”

Ms Mousina agrees saying there would be no impact on Australia’s monetary policy right now as a result of the new president.

“Inflation is being driven by ‘home grown’ services inflation which are not impacted by changes to US politics,” Ms Mousina said.

“The most direct impact of any immediate reactions to the election is through the currency.

“A higher US dollar doesn’t necessarily lead to a lower Australian dollar (and therefore higher imported inflation) on the Australian Trade Weighted index if other currencies will decline against the US dollar.”

Donald Trump’s trade war will also impact Australian consumers. Picture: Margo Martin / @margomartin / X

If other countries were to respond to Mr Trump’s trade measures it would increase global inflation, which not only will increase prices of goods over the counter but slow the RBA’s rate cutting cycle.

“Inflation could be higher globally and we will be impacted because we import things from around the world, “ Mr Elsake said.

The trade war could also impact Australia if China’s economy was to slow down, as China is our biggest trading partner.

According to the national accounts, in 2023, China bought $219bn of Australian exports, worth 32.5 per cent of Australia’s total exports to the world.

In addition China is Australia’s top overseas market for agriculture, resources and services.

Ms Mousina said Australia imported more from the US than it exported which meant it runs a trade deficit with the US.

“This means that Australia will probably avoid being hit directly by tariffs because the point of the tariffs is for the US to reduce its reliance on global imports and produce them domestically,” she said

“The impact from US tariffs will be more on the impact to global trade (likely to be a negative) and the larger impacts on China, which are likely to be hit by larger tariffs which could lead to lower Chinese exports and therefore lower demand for raw commodities (which will hurt Australia).”

Mr Trump will take office next January.

Originally published as ‘Incredibly stupid’: Trump’s tariffs set to cost consumers $2600