How Trump’s tariff war exposes America’s economic fault lines – Firstpost

At a campaign rally in Erie, Pennsylvania, on September 29, 2024, Donald Trump hammered Joe Biden over inflation for the nth time and promised to make “bacon and eggs” affordable if re-elected. “We’re going to get the prices down … It’s too much. Groceries, cars, everything.”

Inflation and immigration were Trump’s favourite 2024 election ammo. Rally after rally, he fired volleys at Biden and promised that “
inflation will vanish completely”. “When I win, I will immediately bring prices down starting on Day One.”

Trump even admitted to NBC’s Meet the Press that inflation helped him win. “When you buy apples, when you buy bacon, when you buy eggs, they would double and triple the price over a short period of time. And I won an election based on that. We’re going to bring those prices way down.”

However, once in office, Trump backflipped. “They all said inflation was the No. 1 issue. I said, ‘I disagree.’ I talked about inflation too, but how many times can you say that an apple has doubled in cost?”

Prices weren’t down on Day One of Trump’s office—an economic impossibility he had sold to his voters.

Prices of groceries, gasoline and homes increased as the consumer price index (CPI) was up 3 per cent in January, an increase from 2.9 per cent in December, compared to a year ago. Eggs became costlier by 53 per cent year over year, up 15.2 per cent from December—the biggest monthly increase since the 18.3 per cent rise during the 2015 avian flu.

Trump blamed it on Biden. “Inflation is back … They [the Biden administration] were given $9 trillion to throw out the window,” he told Fox News.

CPI ended up a seasonally adjusted 0.2 per cent for February, putting the annual inflation rate at 2.8 per cent.

March inflation decreased by only 0.1%, putting the annual inflation rate at 2.4 per cent—though consumer prices fell for the first time in nearly five years.

While prices of gasoline, air tickets, car insurance and used cars decreased, food, medical care, new cars and apparel were costlier. The increase in grocery prices (0.5 per cent) was worse with eggs costlier by a massive 60 per cent from a year ago and nearly 6 per cent from February. Meat was also costlier with ground beef at 10.4 per cent. Besides, hospitals, nursing home care, home healthcare and health insurance were costlier.

Trump has made it abundantly clear that inflation was just an issue he used cleverly to win the election.

Exactly six months after the Pennsylvania rally, when he slapped 25 per cent tariffs on imported cars and parts, Trump told NBC News that he “couldn’t care less if they [automakers] raise prices because people are going to start buying American cars.” According to him, automakers don’t need to pay tariffs and can “make a lot of money” if they manufacture vehicles in the US.

April 2 “Liberation Day” proved all the more that Trump doesn’t give a hoot about inflation. He wasn’t bothered that the “reciprocal tariff” blitzkrieg against 57 nations and 10 per cent duty on all imports could fuel inflation.

BREAKING: Trump announces tariffs, the highest import taxes since the 1800shttps://t.co/Miio13NtXZ

— Axios (@axios) April 2, 2025

Though he paused the tariffs for 90 days, except for China, the universal 10 per cent tariff and 25 per cent tariff each on auto imports, steel, aluminium and some goods from Canada and Mexico remain.

The tariffs and the ensuing market bloodbath hogged the media limelight. Reports after reports in newspapers, TV news channels and news portals highlighted Trump’s irrationality, how much global markets, especially in the US, lost and accusations of the president indulging in insider trading or market manipulation by egging people to buy stocks ahead of his tariff pause.

In the financial collapse, the most significant point was buried.

Trump’s utter disregard for inflation—the No. 1 issue that helped him trump Kamala Harris in a record-breaking win after 132 years. Not only did he fail to deliver on inflation on Day One, he didn’t care about the high risk of tariffs stoking prices further.

According to him, inflation doesn’t exist. On the third day of the market rout, April 7, Trump claimed that there’s “NO INFLATION” as “oil prices are down, interest rates are down, food prices are down”. On the other hand, the White House was quick to

claim credit for the March inflation figures. “Under President Trump, America is back—but inflation is not.”

Economists, banking, financial and industry honchos warned that raising tariffs could stoke inflation.

Thomas Piketty, French author of the best-selling Capital in the Twenty-First Century, “… the Trump cocktail is simply going to generate more inflation and more inequalities.”

Federal Reserve chair Jerome Powell said, “We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation.”

JPMorgan Chase CEO Jamie Dimon warned, “We are likely to see inflationary outcomes, not only on imported goods but on domestic prices, as input costs rise and demand increases on domestic products.”

One doesn’t need a high IQ to understand that manufacturers will either pass on the hefty tariffs slapped on imported goods to the consumer or shrink their businesses—or maybe do both.

For example, none of the cars in the US are 100 per cent American-made—60 per cent of parts are imported and assembled in the US. Moreover, foreign and domestic manufacturers assemble several vehicles and parts in the US, Mexico and Canada. Shifting production to the US will entail massive costs and time and adjustment of supply chains.

To avoid such costs and ease production, the US Mexico Canada Agreement (USMCA) was signed during the first Trump administration. An auto part manufactured in Canada can be exported to the US or Mexico without tariffs and vice versa or a car assembled in the US can be sold in Canada or Mexico without tariffs.

Trump had called USMCA a “big win for American auto workers”. Now, he has dubbed USMCA “unfair” just like he disagreed that inflation was the No.1 issue.

A Center for Automotive Research analysis shows that the 25 per cent auto tariffs will increase the cost of automakers by around $108 billion this year.

Similarly, American consumers could shell out more with the country importing around one-fifth of its food supply. The 145 per cent tariff on China and 25 per cent on Mexico and Canada will have a ripple effect on the consumer’s wallet with the three countries supplying 45 per cent of US food and beverages.

A 
report by Trace One, specialising in regulatory compliance for the food and beverage industry, mentions a USDA forecast that projects US agricultural imports at $212 billion this year. From 2008 to 2022, the percentage of imports as a share of consumption of fruits and nuts jumped from 35.8 to 60 and milled grains and oils from 31.5 to 57.4. The US also relies heavily on imports for seafood with an estimated 70–85 per cent of seafood consumed domestically being imported.

Mexico exports beer, Canada bread and pastries, Italy and France wine, Chile salmon, Brazil coffee, Australia and New Zealand beef, Peru grapes, Vietnam cashews and China, India, and Indonesia oils and shrimp.

“As tariffs and trade policies potentially shift, these high levels of dependency on imported goods could have a direct impact on food prices at the consumer level,” the report states.

Even if the tariffs aren’t reinstated after 90 days, the inflation risk remains due to the duties slapped on China.

China is America’s third-largest trade partner after Mexico and Canada. According to the United Nations COMTRADE database on international trade, the US imported Chinese goods worth $457 billion in 2020, $542 billion in 2021, $576 billion in 2022, $448 billion in 2023 and $463 billion in 2024.

The US is heavily dependent on China for consumer goods and technology. Telephones, computers, semiconductors, furniture, toys and textiles are among the main imported products.

In 2024, the US imported electrical and electronic equipment worth $127.06 billion from China, machinery, nuclear reactors and boilers worth $85.13 billion and toys, games and sports requisites worth $32.04 billion.

Tech giants like Apple will take the biggest hit. Around 80 per cent of Apple’s production capacity is based in China with about 90 per cent of iPhones, 55 per cent of Mac products and 80 per cent of iPads assembled there. Though Apple directly employs only 14,000 people in China, it monitors the weekly hours of 1.5 million workers in its international supply chain, the majority in China.

Apple has been trying to reduce its dependency on China by diversifying its supply chain to India and Vietnam. However, the two nations have also been slapped with 26 per cent and 46 per cent reciprocal tariffs, respectively—though they are on hold for 90 days.

The iPhone is set to become costlier unless the tariffs on China are withdrawn. According to UBS, an iPhone 16 Pro Max base model ( $1,199) assembled in China could be costlier by 67 per cent, or $800. Moreover, Apple’s iPhone stock in the US will last only up to six weeks, according to Counterpoint Research.

Unaware of America’s lack of workforce on the scale of China, India and Vietnam and the kind of craftsmanship Chinese workers offer, Trump feels “this is a great time to” manufacture iPhones in the US because of “zero tariffs, almost immediate electrical/energy hook-ups and approvals, no environmental delays” and Apple’s recent announcement of $500 billion investment.

Highlighting China’s importance for Apple and the “extraordinary relationship of three decades” between the company and the Asian giant, CEO Tim Cook told the Fortune Global Forum in 2017, “You find in China a sort of an intersection of craftsman kind of skill, sophisticated robotics and computer science which is very, very rare to find anywhere.

“The number one attraction is the quality of people,” Cook added.

According to Bank of America Securities, an iPhone 16 Pro made in the US could cost around $1,500 device if only labour costs are included. While Wedbush Securities pegs the device at $3,500 adding that moving only 10 per cent of its supply chain to the US would cost Apple $30 billion in three years.

Realising the impossibility of the plan, the US Customs and Border Protection later issued a notice on Friday exempting smartphones, computers and various electronic parts from the reciprocal tariffs, giving hope to tech titans dependent on China.

However, Trump dashed the hopes on Sunday. “NOBODY is getting ‘off the hook’. There was no Tariff ‘exception’ announced on Friday. These products are subject to the existing 20% Fentanyl Tariffs, and they are just moving to a different Tariff ‘bucket,’” he posted on Truth Social. “We are taking a look at Semiconductors and the WHOLE ELECTRONICS SUPPLY CHAIN in the upcoming National Security Tariff Investigations.”

Earlier, commerce secretary Howard Lutnick also highlighted the semiconductor tariffs angle. “So, what he’s doing is he’s saying they’re exempt from the reciprocal tariffs, but they’re included in the semiconductor tariffs, which are coming in probably a month or two,” he told ABC News.

Trump’s second trade war with China could also hit American farmers. China’s main imports from the US comprise soybeans, oilseeds and grains. In the 2018 trade war, China turned to Brazil for soybeans and the US agricultural sector lost 
$27 billion with 71 per cent of the losses related to soybeans, per the American Soybean Association. In 2024, China accounted for more than 73 per cent of Brazil’s soybean exports.

An unrelenting China has imposed 125 per cent retaliatory tariffs on US goods. Chinese President Xi Jinping has urged the European Union to “jointly resist unilateral bullying practices” of the US.

Trump is in a soup. On the one hand, he’s gradually alienating European allies, on the other, he’s urging them to unite against China. But the EU relies heavily on China for several goods. More than 50 per cent of the EU’s imports from China are mechanical appliances and electrical equipment, vehicles and aircraft around 6 per cent, organic chemicals 4.7 per cent and clothing accessories at 4.5 per cent.

According to the COMTRADE database, the EU imported Chinese goods worth $438 billion in 2020, $558 billion in 2021, $657 billion in 2022, $586 billion in 2023 and $588 billion in 2024. Last year, China was the EU’s largest supplier of imported goods, accounting for 20.1 per cent of total EU imports.

The EU is in trouble too. If it aligns with China, it will invite Trump’s wrath. If it sides with the US, its trade relations with China will be strained.

Trump’s tariffs have already dragged American consumer sentiment to a three-year low in April and boosted 12-month inflation expectations to the highest level since 1981.

According to an April 8 University of Michigan Surveys of Consumers, there’s a “pervasive and unanimous” slump in consumer sentiment across age, income, education, geographic region and political party affiliation this month.

The Consumer Sentiment Index tanked to 50.8 this month, the lowest since June 2022, from 57.0 in March.

Consumers expect unemployment to rise this year for the fifth straight month to the highest level since 2009 when the US economy was in the Great Recession.

Twelve-month inflation expectations jumped to 6.7 per cent from 5.0 per cent in March for the fourth straight month.

Economists expect the impact of tariffs and inflation to be “
pretty ugly” by May. Food prices will be affected first as perishable stock can’t be stored long. Groceries would be followed by the rise in prices of vehicles, consumer electronics, clothing and furniture.

A 
Yale Budget Lab analysis shows that consumers will face an average tariff rate of 18.5 per cent, the highest since 1933. “The price level from all 2025 tariffs rises by 2.9 per cent in the short-run, the equivalent of an average per household consumer loss of $4,700 in 2024 dollars.”

Consumers will face 64 per cent higher apparel prices in the short run and 27 more in the long run, the analysis further shows.

The writer is a freelance journalist with more than two decades of experience and comments primarily on foreign affairs. Views expressed in the above piece are personal and solely those of the writer. They do not necessarily reflect Firstpost’s views.