Will American consumers now catch a ‘tariff chill’?

Stocks are tanking, market confidence is plunging, gas prices are poised to rocket… the economic ‘disturbance’ from Donald Trump’s tariffs will soon be felt in Americans’ purses and portfolios, says James Moore

Missing what Main Street USA is thinking and feeling is a frequent failing of the world’s media, which is concentrated as it is on the coasts. What if Donald Trump is now making the same mistake?

The president’s second term has started with a hurricane, particularly in the economic sphere.

Wall Street initially cheered his election, taking the view that his plans would boost the US economy. His tax-cutting promises were particularly popular on the street of dreams.

It fell into the same trap as the media and many others. It thought bellicose rhetoric on trade and tariffs was just campaign hyperbole.

Big mistake. America’s stock markets have been slumping as reality bites. There is no more cheering on the trading floors, with the S&P 500 surrendering all its post-election gains. The Dow, the performance of which Trump was fond of boasting about during his first term, has also lost the contents of its stomach.

The tariffs imposed on goods imported from Canada and Mexico, America’s biggest trading partners, were the cause. They were swiftly reciprocated. Ditto China, the source of a lot of consumer electronics. When it comes to the “tariff chill”, there may be more to come.

US businesses are now scrambling to deal with something close to what their people would have presented as a worst-case scenario.

Noting Trump’s rhetoric and past history with China was enough for some to shift production away from there.

However, there is only so much you can do. The central idea behind the tariffs – that they will bring production and jobs back to the US – is simply impracticable for many, in fact most industries.

Let’s take avocados as an example. Per the US Department of Agriculture, Mexico’s 2024 production is forecast at 2.77m metric tons (MMT), a five-per cent increase over 2023, driven by export demand.

The US is the number-one market for those exports, gobbling up 81 per cent. The US does grow the popular fruit, principally in California, but production has been in long-term decline, partly as a result of high costs, with 2024 expected to result in a record low. With barely 7 per cent of Mexico’s output, it simply isn’t possible for the US to onshore enough avocados to meet consumer demand. So those consumers are going to have to pay more.

Brian Cornell, the boss of Target, one of America’s iconic retail brands with its discount department stores and hypermarkets, has told his investors that the company is in “student mode” with regard to the harsh new economic environment.

However, the price of everything from electronics, to home furnishings to fresh food – including, that’s right, avocados – will be affected.

Some have suggested Trump’s tariffs on Canadian imports – which took effect on Tuesday – could cause gas prices to climb, perhaps by as much as 40 cents a gallon.

In a CNBC interview, Cornell warned that American consumers will soon feel the impact on, for example, fresh food. “If there is a 25 per cent tariff, those prices will go up ... certainly over the next week," he said.

He declined to go into detail about precisely how it will play out in terms of price points. Small wonder. He faces a difficult balancing act, juggling the expectations of investors with the willingness of consumers to pay up for non-essential items such as electronics and home furnishings that make up the majority of his sales.

But Rick Gomez, chief commercial officer, had an interesting take on T-shirts, which look set to play the role of ‘loss leader.

“We want $5 Ts, so we’re not going to take the price on the T-shirts, but we do know that we have more flexibility when it comes to dresses, so maybe we’ll look at dresses a little bit differently,” he said.

Needless to say, Target’s shares have taken a hit, falling by just over 8.5 per cent since the end of February. Electronics retailer BusyBuy has shed just over 17 per cent over the same period. It beat Wall Street’s forecasts with its recent results but the stock fell anyway because CEO Matt Bilunas said inflation-battered customers were showing price-sensitive behaviour. Throw tariffs into that mix, and it’s hard to feel optimistic about the company’s prospects.

It is difficult to feel much in the way of sympathy for a Wall Street CEO, but Bilunas is caught between a rock and a hard place without an obvious escape route short of saying “please, please, please” to a president who doesn’t seem minded to listen. As for Cornell, he said he hadn’t spoken to Trump and was relying on the industry’s lobbyists. They will be busy.

Even some on the right have baulked in the face of all this distemper. The Conservative leaning Wall Street Journal, for example, aptly described the tariffs as “the dumbest trade war in history”. Trump responded by saying the “globalist” Journal was “always wrong”.

But while you can pooh-pooh economic numbers, you can’t call them “wrong” when everyone can see them in black and white and feel their impact.

The president could ask Keir Starmer what it’s like to keep hearing warnings about recession and what that does to your poll ratings. The US Federal Reserve will have to respond to the inflationary surge about to wash through the US economy with boosting interest rates.

Is Trump going to call voters on Main Street wrong for getting antsy about the diminishing power of the dollar in their pocket, and higher mortgage and car repayments?

The Democrats, and their progressive wing in particular, have been trying that one lately. It has not been working well for them.