President Donald Trump is urging everyone to keep their cool. But the rollercoaster tariff war is rattling nerves from coast to coast as Americans nervously watch their stock portfolios and 401(k) accounts yo-yo with the wild gyrations of the financial markets.
Economists say consumers have good reason to worry.
At midnight Eastern time Wednesday, the White House imposed double-digit rates on dozens of countries. Hours later, Trump reversed course, lowering tariffs on goods from dozens of countries to 10% for 90 days. The temporary reprieve from global tariffs sparked a historic surge on Wall Street, but uncertainty remains on Main Street.
“The changes in tariff policy created as many questions as they did answers,” Bill Adams, chief economist for Comerica Bank, told USA TODAY.
The changes also escalated the trade war with China. Trump increased tariffs on Chinese goods to 125% on Wednesday, citing “the lack of respect China has shown to the World’s Markets.”
China is imposing tariffs of 84% on all U.S. products. Trump also said he would move forward with other tariffs on pharmaceutical drugs and foreign steel.
So what do the latest developments mean for your wallet?
Trump and his top economic advisers said they paused the tariffs after more than 75 countries approached the U.S. ready to negotiate. But he also told reporters that the turbulence in the markets played a role.
“I thought that people were jumping a little bit out of line,” Trump said. “They were getting yippy, you know. They were getting a little bit yippy, a little bit afraid.”
But trade deals will not happen right away, Commerce Secretary Howard Lutnick told Fox News. “The real deals will take some time,” Lutnick said Wednesday.
In the meantime, American consumers should brace for “more bad days in the stock market” and a “massive” increase in prices, not to mention the possibility of a recession, said Mark Zandi, chief economist for financial services company Moody’s Analytics.
“I wouldn’t take any solace in the president’s reversal of the reciprocal tariffs,” Zandi told USA TODAY. “With the higher 125% tariff on Chinese goods, the effective tariff across all countries and goods didn’t change appreciably. It is still above 20% and will result in big price increases for everything from clothing to cars to cell phones.”
A tariff is a form of tax imposed on goods imported from another country.
Though Trump has said foreign countries foot the bill, it’s the importers ‒ often U.S. companies ‒ that pay these taxes. Companies tend to pass on at least part of those higher costs to consumers, which is why economists say tariffs can be inflationary.
The money from tariffs goes to the Treasury Department. Economists say much of the cost of tariffs during Trump’s first term was passed on to consumers.
Trump has said he views tariffs as a tool to boost manufacturing in the United States and bring in “billions of dollars, even trillions of dollars” in revenue, going so far as to float the idea of replacing income tax with tariffs.
“We’re going to start being very wealthy again,” he said last week.
Trump has also said tariffs can be used as a negotiation tactic with other countries or to punish those he views as uncooperative.
Before the 90-day pause was announced, Peter Navarro, Trump’s senior counselor for trade and manufacturing, said tariffs were expected to raise $6 trillion over the next 10 years. Other estimates have been more conservative; the Yale Budget Lab said 2025 tariffs could bring in about $3 trillion between 2026 and 2035.
But some economists warn that tariffs can be an unreliable source of revenue.
If the trade war increases the cost of goods, consumers could find themselves pulling back on spending, which makes up about 70% of the economy. Companies in turn could slow their imports, which would mean less revenue from tariffs for the government.
Using tariffs as a negotiation tactic could also reduce potential revenue if the U.S. agrees to scale back tariffs against its trade partners.
After the announcement of the 90-day pause, tariffs currently in place include:
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A universal 10% tariff against all trading partners outside of Canada and Mexico.
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A 25% tariff on steel and aluminum.
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A 25% tariff on imported vehicles and certain auto parts.
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Canada tariffs: 25% on most goods that don’t comply with the United States-Mexico-Canada Agreement.
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Mexico tariffs: 25% on most goods that don’t comply with the United States-Mexico-Canada Agreement.
The European Union, China and Canada have announced retaliatory tariffs against the U.S.
A U.S.-China trade war could have huge consequences for American consumers, jacking up prices on everything from groceries to cars to iPhones after years of punishing inflation.
From smartphones to computers and from toys to Christmas decorations, China is the country’s top supplier, accounting for 16.5% of the $3.2 trillion worth of imports brought into the U.S. in 2022, according to the Office of the U.S. Trade Representative.
“The tariff mix is actually worse,” Bloomberg LP’s chief economist Anna Wong said on the X social media platform. “China exports more consumer goods to (the) US than other countries, so boosting that (to 125%) relative to others will boost the hit to consumption goods.”
Trump said Wednesday he did not think he would need to raise tariffs again and that Xi Jinping, China’s president, wants to make a deal.
“I can’t imagine it,” he said in the Oval Office. “I don’t think I’ll have to do it.”
Beijing hasn’t yet responded to the latest tariff escalation. Analysts say Beijing is unlikely to yield.
Beijing has stockpiled “a new arsenal of tools that’s intended to minimize the cost to China and maximize the pain on the US,” Evan Medeiros, a former senior national security official in the Obama administration and now a professor at Georgetown University, told The Wall Street Journal.
Tuesday, China’s commerce ministry said the threat to raise tariffs was “a mistake on top of a mistake” and that “China will never accept it.”
The U.S. stock market saw dramatic swings on the heels of Trump’s April 2 tariff announcement, with investors concerned that tariffs could push the U.S. into a recession.
The S&P 500 temporarily dipped low enough earlier this week to enter bear market territory – at least a 20% fall from a recent peak – before rebounding. Stocks rallied Wednesday after Trump announced the 90-day pause.
A Yale Budget Lab analysis said apparel prices could jump 33%. Food prices could also rise 4.5%, roughly triple recent grocery inflation.
President Trump’s 90-day tariff pause excludes the 25% tariff on imported cars and car parts. New auto tariffs would raise vehicle prices 13.5% on average, the analysis found.
This article originally appeared on USA TODAY: Trump reverses new tariffs. What the 90-day pause means for you.
