What Trump's EU trade deal means for your wallet

The Herald Scotland

5 days ago

But for U.S. consumers, even the reduced tariff is expected to spur higher prices. The Yale Budget Lab estimates that Trump's tariffs, including the new rate for EU imports, would raise prices by 1.8% in the short run, the equivalent of an average household income loss of roughly $2,400.
While the increase may sound insignificant, "the Federal Reserve's inflation target is 2%. So we're talking about almost a year's worth of inflation above and beyond the inflation that we would've gotten anyways," said Ernie Tedeschi, director of economics at the Yale Budget Lab. "So that's meaningful."
Here are some of the sectors that could see higher prices in the months to come.
European cars
Automobiles, one of the EU's largest export sectors, will likely see some of the most noticeable price hikes, according to Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics.
While the 15% tariff is a relief from the current 27.5% rate, Hufbauer said the auto industry's margins are thin enough that EU companies won't want to absorb the higher cost.
"I suspect European auto prices sold in the U.S. will go up probably at least 10%," he told USA TODAY.
German Association of the Automotive Industry President Hildegard Muller warned the 15% tariff could cost the German automotive industry "billions annually." Already, Volkswagen has trimmed its full-year sales forecast after reporting a $1.5 billion hit from tariffs over the first half of the year.
Automobile price hikes will likely vary across European makes and models, according to Tedeschi, since many already operate factories in North America. That means trade deals with Canada and Mexico could also influence pricing.
"Consumers should keep an eye out for rising prices for European car imports, but they should not assume that all European brands are going to go up in price because of how complicated the supply chain is," he said, adding that he expects to see price increases tied to the new EU tariffs play out this summer and fall.
What were the EU tariffs before? What to know after trade deal
Furniture
Furniture is another sector that could get hit by tariffs, according to Stephen Brown, Capital Economics' deputy chief North America economist.
The Swedish company IKEA, for instance, relies on China, Poland, Italy, Germany and Sweden to supply "the majority" of products, according to its website. The company did not immediately respond to a request for comment, but Inter IKEA - which produces IKEA furniture - told Reuters in November that just 10% of the products it sells in the U.S. are made in the region.
"Unless they find somewhere else to import from or move around their supply chain, furniture prices ... could see some effects," Brown said.
Pharmaceuticals
While certain sectors like wine and spirits appear to still be under negotiation, EU Commission President Ursula von der Leyen said pharmaceuticals will be covered by the 15% tariff, with certain generic drugs not subject to tariffs.
The EU is behind about 60% of pharmaceutical imports to the U.S., according to Reuters, making them the largest European export to the U.S. by value.
But Brown noted that pharmaceutical companies may be able to more easily shift production to the U.S. compared to other industries. For instance, the Danish manufacturer behind the GLP-1s Wegovy and Ozempic, Novo Nordisk, already has a presence in North Carolina and has plans to expand.
"Although there could be some short-term price increases, those might not be as durable as they are for other products," Brown said.
Additionally, consumers may not pick up on the industry's price hikes if their insurance covers the imported drug.
Luxury items
Luxury items like imported designer handbags and apparel could also see higher prices, as well as imported food.
"The difference between China and Europe, in terms of tariffs, is that the tariffs on China increase what people buy in Walmart and Target. The tariffs on European imports will mainly hit what people buy at Whole Foods and high-end retail stores," said Hufbauer of the Peterson Institute for International Economics.
He noted that the companies behind luxury goods tend to have higher margins, though, and may be more willing to absorb some of the higher costs tied to tariffs.
Machinery
Machinery and appliances are also major exports from the EU, accounting for roughly 20% of U.S. imports from the EU in 2021, according to the Commerce Department. While consumers won't buy machinery directly, experts warn the higher prices could eventually trickle down as manufacturers adjust to higher costs.
"These are not necessarily products that immediately or directly impact the consumers, but they can indirectly affect consumers, especially after many years," Tedeschi said.