COLUMBIA — President Donald Trump announced tariffs of at least 10% on all global imports Wednesday, with much higher rates for 60 countries, which will be charged half of the rate that they currently charge the U.S., the White House said.
On Thursday, Wall Street saw its worst day since 2020, as the Dow Jones Industrial Average dropped 1,679 points, or 4%, and the Nasdaq composite tumbled by 6%.
"The stock market responds to people's perceptions about what the future holds," said Tabitha Chikhladze, an assistant teaching professor in applied microeconomics at the University of Missouri. "People aren't very optimistic that firms are going to be as profitable because they're incurring higher costs now with these tariffs going in place."
The Trump administration said these tariffs will even out the playing field by matching tariffs that other countries have on us, calling them "reciprocal tariffs."
Economists say any kind of tariff will raise prices for consumers, with a 2020 Federal Reserve study showing that Trump's 2018 tariffs on steel and aluminum were passed along to consumers.
"Usually the price from the other countries is lower than our price," Chikhladze said. "So without tariffs, that pushes down the price in the domestic market."
Chikhladze said U.S. producers match their prices to other countries to remain competitive. So, when other countries have a lower price, U.S. producers will match that.
President Trump said he wants to incentivize consumers to buy domestically.
"So often, the reason you see tariffs implemented is domestic producers want a higher price, or they can earn more money," Chikhladze said.
But Chikhladze said since domestic producers match the prices of foreign companies, prices of U.S. products will rise once the tariffs go into effect April 9.
"You've got to think of it as, if you're a domestic producer, are you going to sell your product for the low price while everyone sells their product for the high price? Or are you going to bring your price up?" Chikhladze said. "Because you can sell your product at the higher price, it also causes the domestic prices to go up."
This could cause U.S. consumers to spend less.
"It hurts domestic consumers because we're subject to higher prices," Chikhladze said. "We also don't consume as much because of that, and so it reduces some of our quantities there."
But Chikhladze said consumers tend to be more price insensitive than producers, meaning they are more likely to adapt and continue to buy at high prices because they don't have as many options.
"If I don't use gasoline for my car, my substitute's walking, taking public transportation, maybe biking — not as desirable as driving my car," Chikhladze said. "Whereas, if I eat fruit, I have and I want something sweet, I have many other alternatives if the price of fruit gets too high."
Consumers can expect prices to increase, according to economists.
"For things we import, we import produce from Mexico, I would expect prices for those things to go up," Chikhladze said. "Even products produced here ... I would expect prices to go up because they're going to be competing with the prices from Mexico, even with the tariff on them."
Chikhladze recommends that consumers save their money for items they will be more price insensitive to, such as gasoline.
"I think it very much depends on each person's budget, right? Some things that are durable, you might be able to get away with it," Chikhladze said. "Things that aren't durable, perishable items. No, you're going to have to make trade offs, coupon things that are going to help you smooth out those changes as much as possible."
