Trump’s tariff plans could cause clothes, furniture, and toys prices to skyrocket

The analysis: President-elect Donald Trump’s universal tariff proposals would cause the prices of products ranging from toys to furniture to household appliances to skyrocket, per a National Retail Federation report.

• Trump said he will impose a 10% or 20% tariff on all imports across the board, along with an additional tariff of between 60% and 100% for products imported from China. And this week he said that he would set tariffs between 25% and 100% on goods imported from Mexico—the US’ largest trading partner—if it didn’t close the border.
• The additional costs associated with the proposed tariffs would be too large for many US retailers to absorb.
• “If we get tariffs, we will pass those tariff costs back to the consumer,” said AutoZone CEO Philip Daniele, on an earnings call in September.
• That’s what happened in Trump’s first term when he slapped a 20% tariff on imported washing machines. The policy drove up washers cost by an average of 12%, per a University of Chicago study. The prices of clothes dryers also rose between 5% and 17%, even though they weren’t impacted by the tariff as manufacturers used the tariffs as an excuse to pad their margins.

Zooming in: Trump’s tariffs would lead to double-digit percentage price spikes in each of the six retail categories NRF examined.

• For example, toy prices would jump 36.3% to 55.8%, depending on whether tariffs are set at 10% or 20%. That would lead to a $50 tricycle costing up to $78, a $25 board game costing up to $39, and a $17 plush toy costing up to $27.
• Consumers would incur up to $7,600 in additional costs annually per household, leaving them less money to purchase other goods and services. Those costs would hit lower-income consumers particularly hard.

There are some US manufacturers that would benefit from the protectionist policies. However, the approach may not incentivize companies to shift production to the US. For example, Stanley Black & Decker explored shifting production from China to other parts of Asia or Mexico, but is “unlikely” to move production to the US because it is “not cost-effective” and there are “questions about whether we even have the labor to actually do that in this country,” said Donald Allen, president and CEO, during the company’s earnings call.

Overall, the approach will have a net negative impact on the United States, per NRF.

Our take: There are two likely scenarios that would stem from Trump’s tariff policy:

• Inflation would rise: Wells Fargo economists Jay Bryson and Michael Pugliese estimated the policy would cause the core consumer price index inflation rate to surge from 2.7% to 4%.
• So would interest rates: The Federal Reserve would likely hike interest rates to combat inflation, which would weigh on the stagnant housing market, hurting a broad array of housing-related retailers and brands.

Trump’s tariff policy will likely have a cascading effect that could make life challenging for many retailers, particularly those such as dollar stores that rely heavily on goods imported from China.

Go further: Read How the outcome of the US presidential election will affect 3 critical economic factors for retail.