The tariffs on steel and aluminum that Trump administration plans to impose on foreign trade partners including Canada, Mexico and the European Union are inspiring a round of retaliatory measures that will drive up costs for American manufacturers and, ultimately, American consumers. "Anything that's manufactured — prices will rise," Mark Zandi, chief economist at Moody’s Analytics, told CNBC’s John Harwood.
Harwood pointed out that rising prices will eat into the modestly larger paychecks many American workers are seeing as a result of the tax cuts. The Trump administration’s trade policy, Harwood noted ironically, offers “an unorthodox follow-up to cutting the taxes American families pay: raising the prices of goods they buy.”
Add in ever-rising health care costs and sharply higher gas prices, and many American consumers may see all of their tax cut windfalls accounted for, and then some. Middle-income workers are getting a tax cut of $930 per year on average this year, but pricier fuel could claim about $320 of that, health care premium hikes about $612, and tariff-related costs about $210, according to Zandi’s estimates. “At best, breaking even,” Harwood concluded. And lower-income workers – the bottom 20 percent of households will get a tax cut worth $60 on average – will be worse off just from the tariffs alone.
Howard Gleckman of the Tax Policy Center said Friday that the Trump administration’s trade policies, combined with its stance on immigration, could have negative effects on the economy as a whole. Citing analyses by the Federal Reserve Bank of Dallas, Gleckman said that a trade war could reduce U.S. GDP by 3.5 percent in the long run – more than enough to wipe out any positive growth flowing from the tax cuts.