Filenews 3 February 2025 - by Peter Cohan
Donald Trump announced 25% tariffs on imports from Canada (with the exception of oil which will be charged 10%) and Mexico and additional 10% tariffs on imports from China.
In the past, tariffs provided most U.S. revenue. Not anymore. Between 1790 and 1860, tariffs accounted for 90 percent of federal revenue, Dartmouth College economist Douglas Irwin told The Associated Press.
In 1913, the US enacted the income tax, which brings most of the revenue to the federal treasury. For the year ending September 30, 2025, income, social security and health care taxes will bring in $4.2 trillion in revenue. dollars, eclipsing the $80 billion from duties and fees, according to the AP.
The new tariffs are expected to squeeze U.S. households by raising taxes, reducing incomes and making tariffs more expensive. Rising inflation may have forced the Fed to raise interest rates.
American households are being 'strangled'
Many workers experienced their financial "bloodletting" in 2019-2023. While the average wage rose 12 percent — from $54,100 to $66,622 — basic family spending rose much more.
Between 2019 and 2023, the three largest spending increases were:
The average monthly rent increased by 38%. Notably, it jumped from $1,483 in June 2019 to $2,047 in September 2023, according to Zillow. In 2019, rent per year was $17,796, or 33% of the median salary. In 2023, the annual rent had reached $24,564, or 37% of the median salary.
The average transportation cost for an American family increased by 41%. It jumped 23% from 2019 to 2023, from $781 to $1,098. Year-on-year in 2019, transfers cost an average of $9,372, or 17.3% of the average salary. In 2023, annual transportation costs had climbed to $13,176, or 20% of the average salary.
– The famous "housewife's basket" increased by 23%. In absolute terms, costs increased on average from $156.50 to $193.20 between 2019 and 2023. If we consider such a "basket" to be purchased once a week, the actual cost increased from $8,138 in 2019 to $10,046.40 in 2023 — representing 15.6% of the median salary in 2023, a slight increase from 2019's 15%.
Tariffs will raise taxes and prices
The tariffs would curb economic output in the U.S. and raise taxes on households. Specifically, the tariffs would reduce U.S. economic output by 0.4 percent and raise taxes by $1.2 trillion between 2025 and 2034, adding by raising the average household's tax by $830 in 2025, according to the Tax Foundation.
Companies importing products from Mexico and Canada will pay the tariffs and pass on the costs to the consumer. U.S. consumers will pay more for cars, oil and gas, food (mostly fresh fruits and vegetables) and beverages (such as beer and tequila), according to CNN.
Imports from Mexico and Canada accounted for 30% of U.S. imports in 2024. The US imported EUR 87 billion worth of vehicles from Mexico last year. $64 billion worth of vehicle parts. Cars were the No. 2 product imported by the U.S. and from Canada – until November 2024 – with a total value of $34 billion. Canada's top export to the U.S. for 2024 was energy: oil and gas – worth $97 billion.
The US imported agricultural products worth $46 billion from Mexico, according to data from the U.S. Department of Agriculture. Among other things, fresh vegetables worth $8.3 billionn $5.9 billion worth of beer, $5 billion worth of alcohol and spirits.
Some analysts say the tariffs will raise taxes on consumers and the prices of imported goods, while cutting family income.
How; Forbes estimates that due to tariffs, taxes on the middle class will increase by $1,700 per household, income will fall by 3.5%, and tariffed goods are estimated to increase spending by at least $3,900.
Higher inflation, higher interest rates?
With tariffs putting a greater strain on family budgets, inflation could rise. In 2023, an average household had an income of $101,805 before taxes and spent $77,280. An increase in consumer spending of $3,900 would boost the spending of an average family by 5%.
Tariffs in Canada and Mexico could increase inflation — which was running at 2.9 percent, according to the most recent reading. In particular, it may climb to 3.4 percent, as tariffs on these two trading partners may "increase inflation by up to 0.5 percent," according to data from insurer Nationwide's finance department seen by The Associated Press.
"The difficult part in the short term is that if prices go up, we have to see what part of the inflation will be affected so that is what U.S. monetary policy can focus on," Chicago Fed official Austan Goolsbee told CNBC in an interview.
"The signal is clouded when developments occur that drive up prices," he added.
With consumers expecting inflation to rise to 3.3%, according to Time, the Federal Reserve will come under pressure to raise interest rates to bring inflation down to its 2% target.
And if the Fed raises interest rates, consumers with variable-rate debt will be squeezed the most.
Performance – editing: Michalis Papantonopoulos
