How Much Do Tariffs Raise Prices?

A 10-percent tariff on shoes from China would increase their sticker price 4 percent or so, but on wine or olive oil from Italy, almost 10-percent. Why the difference?

Good Morning!

Here are today’s highlights:

• A manufacturer of outdoor and travel products tried to make them domestically.

• With tariffs set to kick in Tuesday, Canadians are shunning American products and travel.

• Republican economist Mark Zandi says the chaos is already taking a bite out of the economy.

• In our latest Dashboard podcast, John Arensmeyer of Small Business Majority says the new administration is a disaster for small businesses.

INTERNATIONAL TRADE

How much do tariffs raise prices? “The question is surprisingly hard to answer. For example, a 10-percent tariff on shoes from China would raise their sticker price 4 percent or so, but on wine or olive oil from Italy, almost 10-percent. Why the difference? Tariffs aren’t the only factor at work. Currency changes, the availability of alternatives, and the pricing strategies of producers and importers all play a part. All of this affects ‘pass-through’—how much of a tariff reaches the consumer. The Wall Street Journal asked Moody’s, an economic-research firm, to model how various tariffs would affect prices of a range of household goods from different countries. The Journal then applied those effects to typical prices found online.”

• “Higher prices on Italian wine don’t drive down consumption much; someone who loves a particular Chianti is reluctant to switch. Sellers are more likely to pass through the full 10-percent tariff, then, betting they won’t lose many customers as a result. A 10-percent tariff on a $21.99 bottle from Italy would boost its price almost the full 10 percent, to $24.08.”

• “But Italian wine is a niche product, accounting for a small share of total U.S. wine consumption, so the total impact on the price of all wine is a relatively small 0.3 percent. That said, this example illustrates how tariffs on one product can raise prices throughout that group. A Californian winemaker would probably nudge up her price as well, earning fatter profits. As long as her new, higher price is lower than the tariffed alternative, she might pick up some market share.”

• “Mexico is the top foreign supplier of passenger cars and sport-utility vehicles into the U.S., accounting for 23 percent of imports in 2024. Tariffs on Mexican-made cars would likely mean not just higher prices for vehicles shipped across the border, but on all cars as other manufacturers and dealers see a chance to eke out more profit while gaining market share.”

• “The study also found that prices of domestically made, not just imported, washers rose, as manufacturers raised prices owing to higher labor costs and tariffs on imported parts, and to match price hikes on imported machines. Meanwhile, U.S. manufacturers expect tariffs on intermediate components, such as steel and aluminum, to also feed through to final prices. Those effects aren’t included in the Moody’s analysis here. But they are real.” READ MORE