Trump tariff plans risk raising prices on goods, including produce and cars

MILWAUKEE (CBS 58) -- President-elect Donald Trump's announced plans to enact new tariffs on goods imported from Canada and Mexico would likely lead to higher prices, according to a number of economic experts.

On Monday, Mr. Trump announced plans to put an additional 10% tariff on products imported from China and a 25% tariff on items exported from Canada and Mexico. The president-elect said he believed the threat of tariffs would compel the nations to do more to stop drugs and criminal migrants from entering the U.S. 

Rebecca Neumann, an economics professor at UW-Milwaukee, said tariffs have typically led to higher prices as stores and producers pass along the higher costs of bringing in goods and materials.

"Tariffs are likely to be inflationary because they would increase the cost to consumers," Neumann said. "Research shows that most of those costs were passed through directly to consumers."

Supporters of the proposed tariffs have said the threat will get China, Canada and Mexico to crack down on drug trafficking and, in the case of the North American countries, better secure their borders with the U.S. 

"The American people deserve better, and President-Elect Trump's leadership offers a clear path to restoring safety and sovereignty," GOP Rep. Glenn Grothman (R-WI) said in a statement. "It is time we played hardball and save American lives and culture."

Tariff supporters have also said raising the cost on imported goods could spur an increase in American manufacturing. Neumann said she was skeptical of the argument because, given current labor conditions, it'd be hard for U.S. companies to quickly pivot and expand operations.

"Right now, we don't have a lot of slack in the economy," Neumann said. "We don't have a high unemployment rate, right? Our unemployment rate is quite low, which means there's not a bunch of idle resources sitting around waiting for those jobs to come in."

Two of the areas where tariffs could affect prices for U.S. shoppers are produce and auto sales. More than half of the fresh fruit and vegetables the U.S. imports comes from Mexico.

More than 20% of the vehicles imported into the U.S. come from Canada and Mexico, and for General Motors, that number is nearly 30%.

Locally, the Metropolitan Milwaukee Association of Commerce (MMAC) said it was following Mr. Trump's tariff plans closely.

"Tariff policy is complicated, and any action taken should be measured and free of negative consequences on the U.S. economy, especially any inflationary impact," MMAC President Dale Kooyenga said in a statement. "China’s government has unfairly created a state-supported industrial sector dumping goods on the global market and then utilizing back doors, like Mexico, into the U.S. economy."

"On the other hand, the North American trading block has been an overall success for our region and any significant change in tariffs could increase the cost of raw materials for our manufacturers or lead to a larger trade war that will hurt our exporters."

Neumann said if the Trump administration tries to draw distinctions between what is and is not subject to the new tariffs, it could lead to businesses searching for loopholes. She noted some of her past students have worked as transfer pricing specialists and were tasked with helping their companies avoid tariffs.

"It can get down to, like, 'Oh, I'm importing a water bottle, but it has this type of cap; that is covered by the tariff and it's going to be more expensive, but if we switch it to this type of cap, it's not gonna be under the tariff,'" Neumann said.

Neumann said she anticipated local manufacturers were likely reacting to Mr. Trump's announcement by revisiting their purchasing plans for the next couple of months if they rely on materials from China, Canada or Mexico.

"You've got some plans to import a whole bunch of product, you may just slow down," she said. "Or you may say, 'Oh, I better get that in now and hold a bunch of inventory in case these tariffs are really put in place.'"

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