Trump's tariffs could squeeze US factories and boost costs by up to 4.5%

The Guardian

6 days ago

As Donald Trump prepares to announce new tariff increases, the costs of his policies are starting to come into focus for a domestic manufacturing sector that depends on global supply chains, with a new analysis suggesting factory costs could increase by roughly 2% to 4.5%.
'There's going to be a cash squeeze for a lot of these firms,' said Chris Bangert-Drowns, the researcher at the Washington Center for Equitable Growth who conducted the analysis. Those seemingly small changes at factories with slim profit margins, Bangert-Drowns said, 'could lead to stagnation of wages, if not layoffs and closures of plants' if the costs are untenable.
The analysis, released on Tuesday, points to the challenges Trump might face in trying to sell his tariffs to the public as a broader political and economic win and not just as evidence his negotiating style gets other nations to back down. The success of Trump's policies ultimately depends on whether everyday Americans become wealthier and factory towns experience revivals, a goal outside economists say his Republican administration is unlikely to meet with tariffs.
Trump has announced new frameworks with the European Union, Japan, the Philippines, Indonesia and Britain that would each raise the import taxes charged by the United States. He is prepared to levy tariffs against goods from dozens of other countries starting on Friday in the stated range of 15% to 50%.
The US stock market has shown relief the tariff rates are not as high as Trump initially threatened in April and hope for a sense of stability going forward. Trump maintains the tariff revenues will whittle down the budget deficit and help whip up domestic factory jobs, all while playing down the risks of higher prices.
'We've wiped out inflation,' Trump said last Friday before boarding Marine One while on his way to Scotland.
But there is the possibility of backlash in the form of higher prices and slower growth once tariffs flow more fully through the world economy.
A June survey by the Atlanta Federal Reserve suggested companies would on average pass half of their tariff costs on to US consumers through higher prices. Labor department data shows America lost 14,000 manufacturing jobs after Trump rolled out his April tariffs, putting a lot of pressure as to whether a rebound starts in the June employment report coming out on Friday.
The Washington Center for Equitable Growth analysis shows how Trump's devotion to tariffs carries potential economic and political costs for his agenda. In the swing states of Michigan and Wisconsin, more than one in five jobs are in the critical sectors of manufacturing, construction, mining and oil drilling and maintenance that have high exposures to his import taxes.
The artificial intelligence sector Trump last week touted as the future of the economy is dependent on imports. More than 20% of the inputs for computer and electronics manufacturing are imported, so the tariffs could ultimately magnify a hefty multitrillion-dollar price tag for building out the technology in the US.
The White House argues American businesses will access new markets because of the trade frameworks, saying companies will ultimately benefit as a result. 'The 'Made in USA' label is set to resume its global dominance under President Trump,' a White House spokesman, Kush Desai, said.
There are limits to the analysis. Trump's tariff rates have been a moving target, and the analysis looks only at additional costs, not how those costs will be absorbed among foreign producers, domestic manufacturers and consumers. Also, the legal basis of the tariffs as an 'emergency' act goes before a US appeals court on Thursday.
The treasury secretary, Scott Bessent, said in an interview last week on Fox Business Network's Kudlow show countries were essentially accepting the tariffs to maintain access to the US market. 'Everyone is willing to pay a toll,' he said.
But what Bessent did not say is US manufacturers are also paying much of that toll.
'We're getting squeezed from all sides,'' said Justin Johnson, president of Jordan manufacturing company in Belding, Michigan, north-east of Grand Rapids. His grandfather founded the company in 1949.
The company, which makes parts used by Amazon warehouses, auto companies and aerospace firms, has seen the price of a key raw material – steel coil – rise 5% to 10% this year.
Trump has imposed 50% tariffs on imported steel and aluminum. Jordan manufacturing does not buy foreign steel. But by crippling foreign competition, Trump's tariffs have allowed domestic US steelmakers to hike prices.
Johnson doesn't blame them. 'There's no red-blooded capitalist who isn't going to raise his prices'' under those circumstances, he said.