Uncertainty over tariffs is sparking concerns among consumers due to rising prices and the threat of a trade war.
Consumer confidence is plummeting, debt burdens are increasing, people are more worried about their jobs, and, as a precaution, they are cutting back on some expenses.
Economic policy always ends up affecting grocery bills, paychecks, and family savings, primarily impacting consumers.
Uncertainty caused by tariffs in the United States is generating concern among consumers, who are affected by rising prices and the threat of a trade war.
The introduction or threat of tariffs can have several impacts on U.S. consumers:
- Rising prices: Tariffs typically increase the cost of imports, which is reflected in higher prices for consumers.
- Decline in consumer confidence: Uncertainty over tariffs and their impact on the economy can generate concern and reduce consumer confidence in the economic future.
- Reduced spending: Faced with concerns over prices and the economy, consumers may cut back on spending, which can affect businesses and the overall economy.
- Potential recession: In some cases, tariffs can contribute to a recession, especially if they trigger a trade war.
Impact on businesses:
Tariffs can also affect U.S. businesses, particularly those that rely on imports or exports. Tariffs can increase the costs of imports, reducing business competitiveness, or they can lead to retaliatory measures from other countries, making exports more difficult.
Even so, while the general fundamentals supporting the consumer remain strong, risks have increased significantly.
High inflation and high interest rates have contributed to consumer vulnerability, making them even more susceptible at a time when the absolute unpredictability of the Trump administration’s policies—including massive tariffs expected to result in price increases—is cooling spending and investment plans.
The Commerce Department reported that inflation-adjusted consumer spending rose just 0.1% in February, as Americans bolstered their savings accounts, while an independent survey showed consumer confidence plunged 12% in March.
Consumer spending drives more than two-thirds of the country’s economic activity; therefore, if that engine stalls, economic consequences can begin to escalate.
“It’s not zero, but it’s pretty weak”
While U.S. Commerce Department data showed personal incomes posted solid gains for the second consecutive month, real (inflation-adjusted) after-tax incomes rose only 1.8% year-over-year.
If both disposable income and confidence are declining, drops in essential spending are likely, he stated.
However, it’s also unclear whether the low spending in January and February reflected recessionary or inflationary fears or was simply a pullback after a sudden surge in purchases in the final months of last year, said Shannon Grein, an economist at Wells Fargo.
Wages continue to outpace inflation, and overall income growth has been strong thanks to a still-tight labor market.
Still, much depends on the health and stability of the job market.
“Bracing for a slowdown”
However, Grein warns that this isn’t the case for all households.
A recurring theme in the post-pandemic recovery has been the growing bifurcation of American household finances.
Low-income and younger consumers are struggling more, living paycheck to paycheck and facing the greatest impact from tariff pressures, she stated.
Debt balances have been rising, along with delinquencies.
“We’re seeing low-income and younger borrowers driving those delinquency rates higher; they’ve reached their limit,” she said.
However, at the macro level, the health of consumer mortgages—which make up the largest component of total U.S. household debt—is acting as a notable offset, she added.
“Mortgage delinquency is barely approaching pre-COVID levels, where it was at historic lows,” she said. “Equity in the single-family housing market is still near an all-time high.”
Still, she warned, the longer uncertainty persists, the greater the chances that people and businesses will “act strangely.”
“I think uncertainty simply creates more behavioral consequences than the mere implementation of a tariff might,” she said.
And while a recession isn’t the baseline scenario for Grein or Wells Fargo, a general slowdown is likely.
“If people don’t have jobs, they can’t spend”
Victor Yarbrough is aware of the growing gap. He is one of three brothers behind Brough Brothers Distillery, the first Black family-owned bourbon distillery in Kentucky.
The original Brough Brothers distillery is located where the brothers grew up: Louisville’s West End, an area of the city once considered the “Harlem of the South” but that has suffered economically, especially in recent decades.
The situation appears to be worsening for some residents, Yarbrough said in an interview with CNN.
“Two blocks from here, there’s a church that runs food drives; we’ve seen a lot more people carrying baskets,” he said. “That tells me that for many people, even in an economically depressed area, things are getting worse.”
At the same time, Brough Brothers is in the midst of a massive expansion that includes a second, larger facility with event space across the city and had been planning (until recently) to expand its international distribution. Retaliatory tariffs from the European Union and Canada on U.S. whiskey and bourbon have disrupted those plans.
Yarbrough said his company is doing everything it can to adapt but worries about how his customers will cope if prices for many products rise.
“We have very competitive prices, but the reality is, if people don’t have jobs, they can’t spend,” he said.
In summary:
Uncertainty generated by tariffs has a significant impact on U.S. consumers, increasing prices, reducing confidence and spending, and potentially leading to an economic recession. Businesses are also affected, as tariffs can raise import costs and hinder exports.
Reporting from CNN
