US consumers have been spared largely from the inflationary effects of the Trump administration tariffs so far, but the risks of price hikes are increasing, an expert says.
Since returning to the Oval Office in January for his second term, US President Donald Trump has announced a series of tariffs on allies and adversaries alike.
Mr Trump has cited various reasons for the tariffs, including raising revenue to deal with trade deficits and returning manufacturing to the US.
Between January and July of this year, the US raised about $U122 billion ($185 billion) from tariffs, which only represented about 2.4 per cent of the projected total federal revenue for the 2025 financial year.
The Congressional Budget Office projected the federal budget deficit will be $US 1.9 trillion ($2.8 trillion).
Monash University economist Robert Brooks said the risks with increasing tariffs were that they become difficult to rein in.
"When you have these trade barriers ... they become sticky and persistent and they become harder to wind back the longer that they've been in place," he said.
Which industries and countries have been hit hardest?
Countries with the highest tariffs
The country with the largest looming tariff is China.
But after a brief trade war earlier in the year, Washington and Beijing called a 90-day truce to negotiate a trade deal, which was extended in August.
At present, the rate for Chinese goods entering the US is about 30 per cent.
The countries now with the highest tariffs on imported goods are Brazil and India, whose imports combined are worth more than $US100 billion ($151.6 billion) annually.
In late August, the Trump administration doubled the rate on goods from India to 50 per cent, saying it was in retaliation for New Delhi buying Russian oil, which has become a key funder of its war in Ukraine.
It came after Mr Trump placed a 50 per cent tariff on Brazil, where, in a letter, he linked the increase to the treatment of former president Jair Bolsonaro, who, in September, was jailed for over 20 years for plotting a coup.
Professor Robert Brooks said most countries hit with tariffs have looked to make deals with the Trump administration.
"That tit-for-tat retaliation just hasn't happened in a significant way," he said.
"The India one has probably gone in a surprising way, really, whereas I think initially people had thought perhaps there was an India deal in the offering, but that's proven to be a more complex setting."
But some experts fear the US tariffs on North American neighbours may have long-term impacts.
Currently, the tariffs on Canada (35 per cent) and Mexico (25 per cent) are for all goods outside of the United States-Mexico-Canada Agreement (USMCA).
"We've seen record levels of Chinese foreign direct investment into Mexico," said Jared Mondschein, director of research at the United States Studies Centre.
"Just how much the Chinese firms have in many ways bypassed the trade barriers between the US and China by going through Mexico."
100%: Pharmaceuticals
The most recent sector hit by US tariffs has been the pharmaceutical industry.
Last Thursday (local time), Mr Trump said there would be a 100 per cent tariff would apply to imported branded or patented pharmaceutical products — unless the company had already broken ground on a manufacturing plant in the US.
The prospect of new tariffs on pharmaceuticals was flagged in July when Mr Trump threatened to hit drug manufacturers with a tariff as high as 200 per cent if they did not move manufacturing to the US.
In 2024, the US imported nearly $US233 billion ($357 billion) in pharmaceutical products, according to its Census Bureau.
Pharmaceutical products are one of the top export markets for Australia to the US, worth about $1.6 billion in 2023-24.
AMP chief economist Shane Oliver said only six per cent of the pharmaceuticals exported to the US last year were medicines.
"The bulk of it was blood products from CSL, and it's unclear how much of that would be branded or patented, and CSL has indicated it does not expect to be impacted given its heavy US manufacturing presence," he said.
Australian company CSL said last week it already has production capacity in the US with about 19,000 people employed there.
Professor Brooks does not anticipate the tariff will impact large drug manufacturers, because many already have some manufacturing capability in the US.
But there were parts of the manufacturing supply chain in pharmaceuticals that involved smaller companies, and they had a much greater challenge, he said.
"So smaller companies are going to have to think through what they do, but equally, pharmaceuticals is one of these sectors where thinking about protection of intellectual property and about partnerships is really well done," Professor Brooks said.
"I don't think it would change that significantly. It might change the nature of particular partnerships for some firms, but the reality is it's already a sector where that's part of the business model."
50%: Steel and Aluminium
In March, Mr Trump announced a 50 per cent tariff on all foreign steel and aluminium, removing existing exemptions.
It came after the first Trump administration set a 25 per cent tariff on steel, and a 10 per cent tariff on aluminium in 2018. Those tariffs included exemptions for a range of countries such as Australia, the United Kingdom, Japan, Canada and the European Union.
Those tariffs were maintained by the Biden administration and later increased by 200 per cent for Russia in response to its invasion of Ukraine.
In June, Mr Trump increased the tariffs on steel and aluminium to 50 per cent. The only country that received an exemption was the United Kingdom, which has a tariff rate of about 25 per cent.
Professor Brooks said the increased steel and aluminium tariffs would add to inflation.
"The price pressure on that is because steel and aluminium are important products in a lot of supply chains to the extent that those prices are higher," he said.
"The intermediate product prices are higher and the cost of lots of things then goes up in the US."
25%: Automobiles
In late March, Mr Trump announced he would place a 25 per cent tariff on all automotive imports into the country.
More recently, Mr Trump has flagged that he would also impose a 25 per cent tariff on heavy-duty trucks from October 1.
But months on from the tariff on auto parts, there have not been the price increases initially expected, with the average manufacturer's suggested retail price for new vehicles in the US rising by less than one per cent between March and August.
US car makers said they could lose billions in tariff-related costs, but have not yet passed on the cost to the consumer.
There have been some who have been able to get trade deals with the Trump administration.
In June, the United Kingdom agreed a deal to cut the tariff to 10 per cent for up to 100,000 cars, which was a similar amount of vehicles exported by the UK in 2024.
While in late September, the European Union agreed on a deal for a 15 per cent tariff that would be retrospectively added from August 1.
Professor Brooks said one of the great success stories over the past few decades has been the integration of the supply chains between the US, Canada and Mexico, but that was now at risk.
From the beginning of September, Canada announced it would be placing 25 per cent tariffs on auto imports and steel and aluminium products from the US.
"What that does then is it means if you're doing the bits of [production] that you're doing in the US, where you're accessing component parts, your costs are clearly going to be higher," he said.
"You've clearly got more pressure to pass that on in terms of higher prices to consumers and you don't have a ready way of doing a disintermediation piece and bringing all that back together.
"The inevitable consequence of that is you either get lower profitability of the US firms and you get some combination of higher prices to consumers to the extent that there's higher intermediate production costs."
25%: Furniture, cabinets and vanities
In late September, Mr Trump announced 50 per cent tariffs on kitchen cabinets and bathroom vanities that would take effect on October 1.
He also announced a 25 per cent tariff on upholstered furniture.
But those were later altered to a 25 per cent tariff on cabinets, vanities and upholstered furniture, which will take effect on October 14.
Mr Trump also said the tariffs on upholstered furniture would increase by 30 per cent, and cabinets and vanities would rise 50 per cent by January 1 for countries unable to reach an agreement with the US.
He also announced an additional tariff of 10 per cent on timber and lumber.
It came after the announcement in April that the US Commerce Department opened a national security investigation into US lumber imports.
The US Chamber of Commerce voiced its opposition, saying the goods do not represent a security risk.
"Imposing tariffs on these goods would raise costs for US businesses and home construction," the chamber wrote.
The price of a living room, kitchen and dining room furniture has rose by almost 10 per cent in the last year, according to the US Labour Department.
Professor Brooks said over time, the new tariffs on everyday items such as furniture created a greater price pressure for consumers.
"[Inflation] becomes this much larger issue for them as you get into the back end of 2025 and into 2026 in a much more significant way," he said.
50%: Copper
In July, Mr Trump flagged his intention to place new tariffs on imported copper.
By the end of the month, Mr Trump signed an executive order placing a 50 per cent tariff on copper, but with a narrower focus.
These include copper pipes, wires, rods, sheets and tubes as well as "copper derivative products", the White House said.
Copper is an increasingly important metal, with it being described as the "cornerstone for all electricity-related technologies" by the International Energy Agency.
It is also used to develop semiconductors, an industry that is expected to be worth about $US1 trillion ($1.5 trillion) by 2030.
In contrast to steel and aluminium, Professor Brooks said there was currently very little domestic production of copper in the US.
"The US has, over a period of time, had a drop in its ability to do that, all the components of the copper in the local market," he said.
"So that's one where I think the price pressure comes through, and that's why I think the copper prices jumped significantly on that because there's not the on-shoring of that around the mining and the smelting."
The inflationary impacts on goods have largely not been felt yet, according to Professor Brooks.
That's because the foreshadowing of some tariffs allowed businesses to build up inventory ahead of time.
"There's also seemed to be some evidence of US firms adjusting their profit margins and not having the full pass-through to consumers," Professor Brooks said.
"So that combination of building up industry inventory levels, and the combination of reduced margins has, to an extent, moderated aspects of the tariff policy impacts on inflation."
But in the meantime, the "uncertainty dimension" around tariffs was creating challenges in that global trade and investment environment, Professor Brooks said.
"You can only build up inventories in certain commodities for a certain period of time, and your ability to absorb in your margins, you can only do for a certain period of time," he said.
ABC/Wires
