Are Tariffs the New Inflation Trigger? What Consumers and Investors Should Know

Frank Holmes

U.S. Global Investors

As families gathered to celebrate Thanksgiving last week, there was a morsel of good news for consumers: the cost of the traditional feast fell for the second year in a row. A classic Turkey Day dinner for 10 cost $58.08, down 5% from last year, according to the American Farm Bureau Federation’s (AFBF) annual survey.

That should come as welcome relief, but before we raise a toast to declining prices, keep in mind that costs are still nearly 20% higher than they were just five years ago.

Could we be on the cusp of another wave of rising costs? If President-elect Donald Trump’s proposed tariffs on imports from China, Mexico and other key trade partners come to fruition, the answer may well be yes.

History teaches us that tariffs—while well-intentioned as tools for protectionist policies—tend to raise consumer prices. And the American dinner table may once again feel the squeeze.

Are Tariffs a Recipe for Higher Costs?

Among Trump’s proposals is a sweeping 60% tariff on all goods imported from China and a 25%-tariff on goods from Mexico and Canada. The tariffs will remain on Mexican and Canadian goods until the two countries crack down on their “ridiculous Open Borders,” Trump says.

Most economists agree that these policies, if enacted, would result in higher costs for U.S. consumers. After all, tariffs are essentially taxes on imports, and the importing businesses typically pass those costs on to the end consumer.

The size of the impact would depend on the specifics. A hypothetical 10% tariff on all goods entering the U.S. would increase overall prices by an estimated 1.3% annually, according to UBS. Selective tariffs targeting specific goods or countries could be even more disruptive, especially if supply chains can’t adjust quickly enough to avoid the additional costs.

Consider the washing machine tariffs imposed during Trump’s first term. From February to May 2018, the price of laundry equipment in the U.S. rose a massive 16.4%—the largest three-month price jump in 40 years of Bureau of Labor Statistics (BLS) data. Twelve months after the tariffs were in place, Americans were paying roughly $100 more per washing machine and dryer.

Similarly, the broader trade war with China raised costs for everything from electronics to furniture, adding an estimated $3.2 billion per month in additional taxes for American consumers.

The same could happen again, but on an even more dramatic scale. Under Trump’s trade policies, a pair of $80 jeans could cost between $10 and $16 extra, while a $50 tricycle could cost an additional $18-$28 more, according to a new report by the National Retail Federation (NRF).

What It Means for Consumers and Investors

Trump’s proposed tariffs have significant implications for much more than just Thanksgiving dinners. If you believe tariffs are going to drive up prices on imported goods, consider stocking up now on items likely to be affected: toys, household appliances, apparel and even travel goods.

Investors should watch this space closely. Industries with lots of exposure to imported goods—retail, electronics and even agriculture—could face significant headwinds. China, Mexico and Canada are three of the U.S.’s largest trading partners, and disrupting these relationships could lead to ripple effects across commodities markets, manufacturing and technology sectors.

On the other hand, companies that produce goods domestically or operate in sectors less sensitive to global trade could find opportunities in a high-tariff climate. U.S. manufacturers that compete with imports could see increased demand due to higher prices on foreign alternatives.

Among steel producers, for instance, think Nucor or U.S. Steel. Higher material costs could also encourage more recycling, potentially boosting profits for scrap metal firms such as Radius Recycling (formerly Schnitzer Steel Industries) and Steel Dynamics.

Happy Holidays!

Trump’s tariff proposals will likely dominate headlines in the New Year. Whether they are implemented in full, selectively or through compromise remains to be seen. What should be clear, though, is that these policies will carry costs—not just for consumers but for the economy as a whole.

At U.S. Global Investors, we’re keeping a close eye on these developments. Tariffs may put a damper on personal finances, but smart planning and diversification can help ensure investors are prepared for whatever comes next. Happy holidays!

Happy Investing,
Frank Holmes
CEO and Chief Investment Officer, U.S. Global Investors

Frank Holmes

U.S. Global Investors

That should come as welcome relief, but before we raise a toast to declining prices, keep in mind that costs are still nearly 20% higher than they were just five years ago.

History teaches us that tariffs—while well-intentioned as tools for protectionist policies—tend to raise consumer prices. And the American dinner table may once again feel the squeeze.

Are Tariffs a Recipe for Higher Costs?

Similarly, the broader trade war with China raised costs for everything from electronics to furniture, adding an estimated $3.2 billion per month in additional taxes for American consumers.

What It Means for Consumers and Investors

Happy Holidays!

Happy Investing,
Frank Holmes
CEO and Chief Investment Officer, U.S. Global Investors

Europe’s GDP has flatlined over the past 15 years, against a doubling in GDP for the U.S. and even bigger GDP gains in China.

While the U.S. leads the world in AI spending, and China leads in technology like drones, what does Europe lead the world in? Regulation.

They spend more time penalizing U.S. tech firms for regulatory violations than encouraging their own tech ecosystem.

Liquidity is flowing again, but conviction isn’t. U.S. M2 money supply has been expanding for months, even before the recent interest rate cut.

Currently, it’s up 4.8% year over year. That’s the fastest pace since 2022. That’s just enough to drive stocks higher in the short-term. Even algorithms and systematic funds will respond mechanically and buy stocks when they see liquidity rise. It’s the most fundamental indicator.

The volatility index (VIX)’s rise to 16.6, up over 2% this week, shows that big money is hedging, even as the market indices rise. After all, with signs of a slowing economy – and a government shut down – it’s hardly business as usual.

By then the receipts on my desk had arranged themselves into a sort of chorus. I heard, faintly, another refrain—one from Kentucky. In the first days of the shutdown, Senator Rand Paul stood alone among Republicans and voted against his party’s stopgap, telling interviewers that the numbers “don’t add up” and that he would not sign on to another year that piles $2 trillion onto the debt.

That, I realized, is what the tariff story shares with the broader budget theater: the habit of calling a tax something else, of shifting burdens into the fog and then celebrating the silhouette as victory. Even the vote tally made the point: he was the only Republican “no,” a lonely arithmetic lesson in a crowded room.

Senator Rand Paul, (R. KY), who was the sole Republican to vote against a continuing resolution, seems to care about the actual finances of the government. “I would never vote for a bill that added $2 trillion in national debt,” Paul said in various interviews over the weekend.

The $2 trillion he’s referring to is the lesser of two proposals made by the national parties… and would accrue during this next fiscal year.

Oy.

We liked what Liz Wolfe at Reason wrote on Friday, so we’ll repeat it here: “One of the dirty little secrets of every shutdown is that everything remains mostly fine. Private markets could easily replace many federal functions.”

It’s a strange kind of confidence — one where Wall Street soars while Washington goes dark.