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Summary:
We evaluate the impact of various US tariff scenarios on consumer prices using novel micro-level data linking imports to consumer expenditures. Results indicate that an additional 10 percent tariff on Chinese imports, 25 percent tariffs on Canadian and Mexican imports, and 10 percent tariff on other countries could raise consumer prices on everyday retail purchases, such as food and beverage items and general merchandise, covering about a quarter of the total consumption basket, by 0.81 percent to 1.63 percent, assuming half to full pass-through. Notably, tariffs on Canada and Mexico contribute approximately 45 percent of the total price effect. Our results focus on direct effects of tariffs on a quarter of the total consumption basket, and the aggregate effect on the overall Consumer Price Index (CPI) further hinges on the price sensitivity of the excluded consumption categories, particularly transportation, services, energy, and housing.
Key findings:
- Consumer Price Increases: An additional 10 percent tariff on Chinese imports, 25 percent tariffs on Canadian and Mexican imports, and 10 percent tariffs on other countries could raise consumer prices on everyday retail purchases such as food and beverage items and general merchandise, covering about a quarter of the total consumption basket, by 0.81 percent to 1.63 percent, assuming half to full pass-through. The aggregate effect on the overall Consumer Price Index (CPI) further hinges on the price sensitivity of the remainder of the consumption basket.
- Reduced Dependence on China: The United States has decreased its reliance on Chinese imports since the last trade war, mitigating some negative price impacts from new tariffs.
- Significant Impact from Canada and Mexico: Tariffs on Canada and Mexico account for half of the total projected price increases, reflecting the broader scope of current tariff scenarios.
Center Affiliation: Center for Quantitative Economic Research
JEL classification: F13, F14, E31, L16
Key words: tariffs, consumer prices, trade
https://doi.org/10.29338/ph2025-01
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