How Trump's tariffs could affect your holiday shopping

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Hanna Horvath, CFP®

Hanna Horvath, CFP®

Managing Editor & Certified Financial Planner™

Hanna Horvath, CFP®, is a certified financial planner and former managing editor at Policygenius. Her work has also been featured in NBC News, Business Insider, Inc. Magazine, CNBC, Best Company, and HerMoney.

Published November 28, 2018 | 2 min read

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Featured Image How Trump's tariffs could affect your holiday shopping

Over the course of 2018, President Donald Trump’s administration has imposed tariffs on more than $200 billion worth of Chinese goods, targeting almost 6,000 products. The list of taxed goods includes common holiday gifts like raw materials for toys, TVs, electronics and kitchen gear. With the holiday shopping season in full swing, you should think about how the tariffs could diminish your holiday shopping fund.

What even is a tariff?

A tariff is a tax on imported goods. Trump said he is using tariffs to protect American manufacturers against competition from foreign products.

All items targeted in the tariffs face a 10% tax which jumps to 25% starting in 2019. China has retaliated with its own tariffs, which affect billions of dollars worth of U.S. goods. Learn more about the tariffs here.

Higher taxes on foreign products can affect consumers. During the holiday season, the biggest spending period of the year, higher prices could squeeze your budget and perhaps lead to debt.

How will your holiday shopping be affected?

Shoppers probably won’t see huge price increases while shopping for the holidays, but prices may climb in the new year, said Thomas Prusa, professor of economics at Rutgers University.

Prusa said consumers may already see slight increases on washing machines and some Bluetooth electronics. But next year, he believes shoppers will get hit harder than they expect.

“The American public has not fully grasped the scope,” he said. “This tariff escalation is not like anything we’ve had at any time, not since the 1930s. We are at the cusp of consumers really experiencing price spikes with products.”

Most of the initial tariffs Trump imposed in early 2018 targeted intermediate products used, so manufacturers that rely on foreign goods must pay more for them. This puts manufacturers and retailers in the position of either absorbing the cost of the tariffs or passing the cost onto consumers.

What’s more, Prusa said, “At some point, you run out of intermediate products to put taxes on, so then comes tariffs on consumer goods.”

Prusa said the Trump administration has discussed a tariff on automotive parts, which could drive up the cost of cars (and car insurance).

If you are thinking of buying a car, now may be the best time, before tariffs are imposed and prices go up, said Prusa.

“2018 has pained American producers, but next year the American consumer will be affected,” he said.

Even if your holiday gift expenses remain the same, you should still prepare for future tariffs. Consider building an emergency fund to prepare yourself for rising prices, and revisit your budget. (Don’t have a budget? Use this easy spreadsheet to help you get started.)

How are you budgeting for the holiday season? Let us know in the comments.

Image: baramee2554