Trump Tariffs Explained: Grocery Prices and Rebate Checks

Trump’s 2025 tariffs will hit nearly three-quarters of US food imports, raising prices on products that are often difficult or impossible to produce domestically. Senator Hawley has proposed a rebate program to return some of the revenue to households—but would it actually help? 

Kyle Hulehan is joined by Alex Durante, Senior Economist at the Tax Foundation, to unpack how these tariffs work, the economic trade-offs of a rebate, and why repealing tariffs may be the most effective solution.

Transcript

Kyle Hulehan: 0:00

Hello and welcome to the Deduction of Tax Foundation Podcast. I'm your host, Kyle Houlahan, and we are back with another episode. And we are joined by Alex Durante, senior Economist at the Tax Foundation. Now, Alex, we are here to talk about. Tariffs, uh, tariffs are back in the news again. Unsurprisingly, we love to talk about tariffs on this podcast. So you recently had a piece that was about food imports getting hit by tariffs. Could you walk us through that?

Alex Durante: 0:27

So the way that tariffs impact, the food and agricultural sector is a little bit different than how they impact, the manufacturing sector. When a foreign imported good is facing, um, a tariff, like a, a type of manufacturing input the importer has a couple of different options there, right? They could just continue, to import the good from abroad and pay that higher tariff price. Or they could switch to a domestic supplier. And if they do that, they would still be. They would still be paying a higher price than they would be in the world in which the tariffs didn't exist. But they would be somewhat insulated from the full tariff price increase. But with the agricultural sector, it's a little bit different. Because in many of those cases there really isn't a viable domestic supplier that's available. And I think the reason, for that, should be pretty obvious, which is that there's just simply certain foods that. We can't grow in the US and to the extent that we can we can't grow them enough to meet consumer demand. two examples I'll give, which I talk about in my piece. So, so one is uh, bananas. Most bananas. They're consumed in the us are imported mostly from Central America, specifically Guatemala, and we only grow bananas in two places in the US that's in Florida that's in, in Hawaii. There really is no. Viable situation in which those, plantations there are going to be able to increase, their supply of bananas so much to be able to meet consumer demand. So in that case the importer, or rather the consumer in this case, I mean, they really, the final consumer like us, at the grocery store. We really have no choice but to continue to import bananas from abroad. Then pay higher prices for those. And then the other example I'll give to illustrate this is coffee. And right now coffee, which is actually one of the largest food imports that is facing tariffs. We get a lot of coffee. from around the world especially Brazil, which is currently facing a 50% tariff. And although there was a, an exemptions list that was released for Brazil, that list included orange juice and Brazil nuts in terms of food products that were exempt, but it did not include coffee. As it comes to coffee. there are certain places in the US where coffee is grown. But there's a significant lag time in terms of how long it takes those coffee plants to mature and they actually have a viable product. So there again, it's just not simply the case that we can replace farm production with domestic production. And then one other thing I'll add that sort of complicates the story even more. Is that we're all, we also have to account for the fact, that consumers have certain tastes and preferences for certain kinds of food imports. So one example of this is European wines and spirits specifically. Those are gonna be facing 15% tariffs. And th and there are a very. food import for the US now Sure. Could us, you know, could US consumers, could they switch to wines, say that are producing California? Sure they could do that. But you know, if they have a specific taste for French wine, let's say you can't grow French wine. In the US or else it ceases to be French wine. So when you account for some of those tastes and preferences while it is possible that consumers will switch to some more domestic brands and varieties really depends on what their tastes and preferences are. And in that, and in those cases, they might simply just have at no point, or no other solution that they really like. French wine to just continue to buy French wine at the higher tariff price.

Kyle Hulehan: 4:08

So I gotta ask now that you're, talking about coffee and wine and what's your, do you have a coffee of choice? Do you, are you a coffee drinker? Will this affect you?

Alex Durante: 4:16

I am a coffee drinker. I, I do like my coffee. I am. I would not say myself. I am particularly loyal to any brands in particular. But that doesn't necessarily mean that I won't be affected. Because again, coffee is a pretty significant. import for the US and a lot of it is, you know, coming from South America, some of it's coming from Southeast Asia as well, like Indonesia. I, I, I imagine that given that I am a drinker of coffee, I will probably be affected

Kyle Hulehan: 4:42

it's a little funny'cause I feel like that goes against a little bit against TF culture. I feel like we have a lot of like coffee heads, people really, like, they know their thing. So they'll definitely be affected, some of our staff. But I wanna follow up here with do you feel like pharmaceuticals are getting caught up in this?'cause I heard something about that.

Alex Durante: 4:59

So we have been hearing rumblings that pharmaceutical imports would be facing potentially tariffs up to 250% potentially starting next week. Although we haven't been given a firm deadline on this, we also haven't been given. Any kind of indication of what kinds of products that would include. Right now, for me, it's really hard to understand what the justification is for doing this kind of policy. Now, I would imagine that the administration is making the argument that well. There's a lot of pharmaceutical imports that we get from places like China. Should some kind of hot war breakout between the US and China perhaps it would not, you know, it might not be the best idea for them to have access to all these critical supplies. And in that case it would be better to have all those supply chains concentrated. In the US now, I will grant there, there is potentially a national security risk there, but I think what needs to be highlighted is that having supply chains concentrate in the US is not a good way to diversify your risk. And, I'm remiss to even bring up COVID because I think it's a period of time with all

Kyle Hulehan: 6:10

Yeah.

Alex Durante: 6:11

frankly just forget about.

Kyle Hulehan: 6:12

Yeah.

Alex Durante: 6:13

came up, five years ago. I think what we learned is that, from that experience that um, just because you have all your supply chains in the US doesn't mean you're insulated. From a pandemic, because we had many, plants that were shut down, as the virus was spreading. What would make more sense and I think be a better alternative to taring? These goods, if we wanna diversify supply chains, would be to simply negotiate more kinds of free trade agreements with other countries. in order to continue to import this critical good cheaply, but also kind of not have that China exposure that people are concerned about. it could be, we do more imports pharmaceuticals from Vietnam even India or Mexico. To me that the president's approach here, I think as it relates to pharmaceutical imports is very. very misguided and this is gonna have impose some pretty significant costs on that industry and, likely risk increasing the cost of drugs e even more, which again, contradicts. I think a lot of what this administration has said about how they want to work on implementing policies that lower drug prices this would not be a policy to do that.

Kyle Hulehan: 7:24

it doesn't seem like anything that involves tariffs involves lower or cheaper. And I want to touch on one thing real quick. I think to kind of give a people a broad overview of, as we're talking about these food tariffs and the pharmaceutical tariffs is in your blog, you had this chart that showed that. The tariff imports will affect 75% of food imports. Is that correct?

Alex Durante: 7:48

so the reason it's

Kyle Hulehan: 7:49

I.

Alex Durante: 7:49

A hundred percent is because they are, because U-S-M-C-A, so this was the trade agreement that we signed with Canada and Mexico during Trump's first term, which was a renegotiation of a trade deal, NAFTA that we signed in the nineties. that agreement covered many types of food imports. And under the IEP tariffs that are currently in place, U-S-M-C-A covered goods are exempt from those tariffs. Which does cover a pretty broad. Class of food imports, but it does not it does not cover, it does not cover everything. So it's not contrary to I think what a lot of people had. I think it thought it's not really, it's not entirely the case. That we are totally insulated from the tariffs because of these exemptions. Because there are a handful of food products from, from Canada, Mexico that are still facing the tariffs. But nonetheless the fact that those exemptions are there, are providing, some relief to consumers, which I think is a good thing.

Kyle Hulehan: 8:46

Yeah, but it could be nice to not have them at all. That would be nice.

Alex Durante: 8:49

Ideally we I would prefer, and I'm sure many other people prefer to not have the, to not have

Kyle Hulehan: 8:54

Yeah.

Alex Durante: 8:55

Yes,

Kyle Hulehan: 8:56

So to kind of just switch gears here, uh, you know, there was this other proposal offered, which is, uh, Senator Hawley proposed tariff rebates, uh, which does not sound like the best idea to me. Could, could you talk to us about that?

Alex Durante: 9:10

Tariff revenue has brought in about

Kyle Hulehan: 9:12

I.

Alex Durante: 9:13

billion so far. And Senator Hawley's proposal, which was also floated by Trump the week prior to that bill being introduced was to return some of those proceeds to, the American consumer in the form of a tax credit that they would be able to claim in advance of filing season. This would be very much analogous to the stimulus checks that were passed during COVID. And so it would have the same phase outs. So not everyone would get the same, rebate. The rebate based on current. Revenue levels would be about$600 per filer and per dependent in the household, per qualifying dependent. And as part of his bill tax that number would rise as more revenue is brought in over the course of the year. Now, I am certainly, in favor of. Relief for consumers from the tariffs. And in fact, I think, this if that was really what we were trying to do with this policy, I think the simplest way to do that would be to just not have the tariffs. People have asked me, certainly reporters and other folks, is this sort of an admission by the administration. Like, oh, the tariffs actually are affected consumers, and to me it seems that the way they're kind of trying to spin this. Is that they sort of just lie really about who is actually paying the tariffs. So they will assert that it is a foreign firm, sometimes even foreign governments that are, which is just not true, that are paying the tariffs and then they take, this pool of money and say, oh, like, isn't it so great? That these tariff policies are bringing all this revenue, as a gesture of goodwill, we should return this, to the American people. there's actually three problems with this that I'm gonna, I'm gonna get into. So I'm not a fan of the policy though. I would prefer that they are. repealed. But the way I see, you know, as long as we're going to have tariffs, which I think is gonna be the case, at least for the next four years or certainly tariffs this high, as long as we're going to have them and we have this, and this looming fiscal crisis and, which was exacerbated, by the deficit financed tax bill, the one big beautiful bill act that was just passed as long as we have increasing deficits and rising interest costs as well. It would be more sensible to use the revenue for reducing deficits than to simply send stimulus checks to taxpayers. the second problem with the policy which is curious because if you recall, you know, during president Biden's administration, Trump and other and other members of the Republican party frequently railed against the stimulus checks because they were concerned about that that policy increasing inflation. that is essentially what happened. I mean, you we had a restricted supply chain because of the COVID shock, right? And then we were injecting money. Into the economy, which is a recipe for creating inflation. Inflation is still running. bit high. I mean, It's pretty close to 3%. Generally when economists think of implementing stimulative policies, it's typically during an economic downturn. it does not appear that we are currently in an economic recession. And therefore it's really hard to see what the need for this stimulus policy is. And then the final point that I would I would like to make here as well is that. What's interesting about this is that although the rebates would go to consumers but right now it's primarily the importing firm, which is the business that has been paying. been paying the tariff, right? We've only seen a little bit so far of consumer price impacts. to me, if you were to do a rebate, it seems that you would want to be reating the, again, if you were trying to, you, you wanna be reating this, to the firm, that's actually, the firms are actually paying the tariff But of course, as I said, the point of the policy is not to reduce. Consumer harm because the administration does not admit or acknowledge that consumers and businesses and firms are harmed by this policy.

Kyle Hulehan: 13:29

so. What does this mean for businesses then, especially, like small businesses, like a restaurant that's, now paying more for ingredients and there's no relief side, you know?

Alex Durante: 13:39

So, this is kind of the issue that I think is really on everyone's mind, Where are the impacts of the tariffs going to be on the consumer, the final consumer at the point of sale, you know, like at the grocery store? And the answer right now is it's a bit complicated. It's primarily the importing firm, the wholesaler that's paying the tariff. Now they have a couple of different options there, right? They could. pass along the tariff to the consumer. Or they could pass along some of it and then absorb the rest of it. And what's interesting is that if you look at some of the evidence we have of this so far, so back in May, the federal Reserve Bank of New York field of the survey. Now of course this is before a lot, this is before a lot of the largest tariffs went into effect, which happened yesterday. Right? So this is when. Most countries were facing a 10% baseline tariff. And then Canada, China, and Mexico were facing higher tariffs. And what that survey found, they asked firms, how are you responding to the tariffs? And what they found was that about 45% of firms they surveyed indicated they passed along at least some of the cost to consumers. another third said they had fully passed along the costs to consumers. Now that survey does leave, does make one wonder that does show that, okay. Um, You know, 45% are passing like some of the costs. Where are the other 55% doing? What we've kind of have seen the past few months is that we haven't seen a lot of pass through. To the consumer yet. There's only a handful of goods right now where we've seen some price impacts. So I talk, you know, there's certain food products audio equipment. Um, Ha really had a very large jump in the CPI close to 10% over the past month. and sporting goods was also another sector as well that saw some price growth. But other than a few, a handful of some of those consumer goods, we haven't seen a lot of full pass through to the consumer yet. Now the question is why? Well, first of all the tariff policy, there's so much uncertainty around it. The policy changes every other week. If you were a firm, it's kind of hard to make pricing decisions in that environment. And then the other issue. Is that a lot of these firms operate on a contract basis, right? They've already locked in their contracts for the year. The prices are what they are for now. So what I think this means is that we should expect for lot of these goods, considerable lag in terms of when the costs that businesses are incurring are finally passed on to the consumer. And of course, I do wanna emphasize here that even if the firm. Absorbs some of the costs of the tariffs. That is not a good outcome because that entails less money for investment in their business, fewer jobs that are created. It's not really the case that. Just because it's not all that is not being passed on the consumer that this is a good outcome because that still means that American businesses are bearing the cost and that does have impacts on their investment. This is gonna be really difficult for economists. Academics to really I think disentangle the impacts of the tariffs from other things that have been going on in the economy this year. Specifically the fact that we did just pass a very large tax cut that has a lot of pro-growth business provisions on the investment side. So in one sense. You have this, constellation of policies that is going to boost investment. I mean, You have the tariffs, which are going to a depressed investment. So what's interesting is that on the whole it is possible that even with the tariffs and the uncertainty that investment. Altogether on net could increase this year because of the tax cut, because of the tax cut on net. But it's really hard to say that definitively right now. And you know, of course I think it's important for listeners to understand that while most of the reciprocal tariff increases did go into effect. yesterday there was still considerable uncertainty around the tariff levels. So right now China is facing a 30% tariff By August 12th, they're sch they're scheduled to face 125% tariff. the, the pause on the 125% tariff that will likely be extended, perhaps another 90 days. China tariffs will likely remain at 30% for the foreseeable future. this is just another example of just the increasing uncertainty that this administration is generating. And of course, as far as it relates to trade deals, the trade deals, which we could also get into in a

Kyle Hulehan: 18:21

Right.

Alex Durante: 18:22

no, no one really has any sense I think of really what to expect going forward. Other than that, there are going to be higher tariffs than there were. Pre January, 2025.

Kyle Hulehan: 18:32

And, you know, I, I, I think it, it's good to point out here, especially with the business angle, is, yeah, there are some businesses, big businesses maybe that can absorb these things. But that's like Google and Apple and like giant, major companies. A lot of companies don't have such huge margins that they're operating.

Alex Durante: 18:48

the situation is even worse than you make it out to because not only can those companies absorb the tariffs, but they can also go to the president and lobby for

Kyle Hulehan: 18:58

Yeah.

Alex Durante: 18:58

Which we are seeing some of, and that's not good either. I mean, I we don't want to live in a country that has these kinds of crony capitalist policies. This is how policymaking works in certain populous countries like in, in South America where it's like, if you want a certain exemption, or you want a certain subsidy or benefit, you know, you go to the president and banking for that, for that subsidy or exemption from something. But this is in general not how I think the US economy should function. And that's a whole other realm of. But the lobbying cost, is something that, we don't even consider in our estimates and that other groups don't consider, and that's just another cost of the

Kyle Hulehan: 19:36

Mm. No, I mean, yeah, that's really a very good point. Yeah. And I think, I, I guess when it comes to all this with the rebates and the things we're talking about here, isn't proposing a rebate, basically just admitting tariffs, herd consumers, and, you know, you're just trying to hand the money back to them.

Alex Durante: 19:51

Like, like I said I, I agree, but I think, you know, the administration they're coming up with some clever ways, trying to. You know, wiggle out that one. And it's mostly, again just straight up, basically just lying about who is paying the tariffs. And one other thing I would say on this, because the treasury secretary. Said something to this effect, I think yesterday or perhaps earlier this week. But, he was asserting, which again is just in fact not true. If you look at the data that well actually what's happening, so he claimed is that, oh, well, the exporters are actually lowering the pre tariff price and then tacking the tariff on. So actually. It's the foreign firms that are bearing the costs of the tariffs. And the idea being that they don't wanna lose market share, so they can't fully pass along the tariffs. So what they do is they lower the price of the good attack, attack the tariff on, and then the importing firm is allegedly, insulated from those costs. But the problem with this is that if you look. the pre tariff, import prices for all these goods and compare it. If you just look at the trend and compare it to last year import prices are actually slightly up. it's just not true you know that the exporters are lowering their prices. When they sell their goods to Americans, that is just emphatically not true, and it's just not in, in the data. And as long as that is not the case, that does mean that it is Americans that are bearing the cost of the tariff and not foreigners.

Kyle Hulehan: 21:20

And I know in 2018 and 2019, what happened was US farmers lost$27 billion and then we sent out$28 billion in.

Alex Durante: 21:29

The tariffs back then raised about 70 or 80 billion, and maybe about half of that was used to bail out the farmers because they were hurt. By the retaliatory tariffs that other countries impose on us. And it doesn't really see, I mean, I have not heard, well, I mean, first of all, we haven't seen a whole lot of retaliation in general. I'm not entirely sure that the administration is gonna be up for doing another bailout of that kind. Depending on how much, you know, the farmers are affected. But yeah, that is true. Like that was what. Curiously, the revenue back then was used for, and again, this kind of just relates to you end up, you're just playing a game of whack-a-mole, essentially, right? You implement one policy, creates another bad, downstream outcomes, but you have to, try to plug that one that creates other, bad outcomes.

Kyle Hulehan: 22:13

Yeah.

Alex Durante: 22:14

yeah, so this but yeah, that, that is, I think that is a good, an interesting point.

Kyle Hulehan: 22:17

our producer Dan said, you know, when the only tool you have is a hammer, everything looks like a nail. And it seems like they feel like tariffs are the hammer, and we're just gonna, this is what we're.

Alex Durante: 22:26

this is the funny thing about it too. I mean, again, a lot of the policies themselves, are in contradiction, right? Which I also talk about in my piece. Because, on one hand they assert, tariffs are great. They're gonna bring in all this revenue, but on the other hand, they keep saying, oh, it's a negotiating tool. It's only gonna be a temporary policy. If that's the case, and that means the tariffs. Won't bring in as much revenue, you know, as you're claiming. Now, what's actually interesting about this is that they are sort of splitting the difference there because all of the deals that have been nego negotiated still leave higher tariffs in place than we had pre January. So like there are, so the tariffs in once they're sort of being used to negotiate and. Raise revenue. Just the revenue is not, at the scale of what was originally claimed several months ago, which is, if you recall, I think Pier Navarro was claiming something like 6 trillion, over 10. And that's just again not what we're, not what we're seeing and not what us and other groups are forecasting.

Kyle Hulehan: 23:23

So, yeah, if, if tariffs are supposed to help. Pay down the deficit. How do the rebates fit into the math?

Alex Durante: 23:29

that's exactly my point. the administration, complained a lot about how, you know, the one big beautiful bill was not going to increase deficits that much because of the tariff revenue. And look, it is true that the tariffs have been raising some revenue and, we estimate that. Over the next decade, they will raise about 2.4 trillion dollars, and that's before counting accounting for the negative economic impacts of them. And then when you account for that, you're actually under$2 trillion in revenue. And that would bring down the cost. Of the bill somewhat, but none. But nonetheless, it would still be increasing bill. I mean, My preference would be to, eliminate the tariffs then to account for the increase in the deficit forecast that would occur if you did that, you would have to look for pursue spending cuts elsewhere, which I think would be very good. Or. Pursue other revenue raising policies, which might include reversing some of the so pro growth elements that were part of the one big beautiful bill. Perhaps the only slightly Okay. Thing I could say about tariffs, you know, is that they are, they at least bring in some revenue, which does help reduce the cost of the tax bill that is passed. But as I also say in my piece, is this an, an efficient way,

Kyle Hulehan: 24:47

Hmm.

Alex Durante: 24:48

Raise revenue? I think not.

Kyle Hulehan: 24:50

what does this all say about where you think tariff policy is heading? Where's it going right now?

Alex Durante: 24:55

Well, let's see here. So as I stated um, a couple of deadlines to keep in mind. August 12th is supposed to be. the deadline for the China reciprocal tariffs to 125% that will likely be extended. So I think China tariffs will remain at 30% in the near term at the end of the month August 29th. Di minimis import exemption is scheduled to go away. And what that does is for imports that are less than$800 they don't have to get cleared through customs. They don't face tariffs. This. You could think of. I mean, really good examples of this are, the kind of the fast fashion industry. Temu, Xen these are a lot of the kinds of imports that are coming through di minimis and not currently, well, actually that's not quite true because the China di Minims did go away back in May but di minimus in all other countries. is scheduled to go away in at the end of the month, and that's mostly gonna affect places like Vietnam Mexico Canada to some extent. But you know, that's also gonna be another pretty large potentially tax hike, on consumers. That's another thing to keep in mind. And then it's also possible that next week, we will be getting pharmaceutical tariffs allegedly as high as 250%. We will potentially also be getting semiconductor tariffs as high as a hundred percent. Allegedly, a lot of these countries that, I mean, they are trying to some kind of settlement, some kind of negotiation with the president to potentially lower tariffs. I, I am not really optimistic that these deals are going to go, the negotiations are going to go all that. Well, they're really not going well as it is. I mean, I believe Brazil today, or yesterday just straight up said that they just they don't wanna negotiate with the president. They just, they don't have the way earth wherewithal and the energy to deal with the chaos, you know? and the fact that the us, really in a lot of these instances is not. Really able to effectively articulate what it is they're a, what concessions they're actually trying to extract from some of these countries

Kyle Hulehan: 26:54

And honestly what it feels like, and we talked about this, it feels like the tariffs are just like vibes almost. Like it's just a little bit like we're, we're, we're pulling in on something, we're pushing in on something, we're, here's this policy, and then we take it away and it's.

Alex Durante: 27:05

the vibe seem to be signaling that the president is trying to move. the baseline tariff rate higher. So right now, we had a 10% baseline tariff that was in effect. Really since April it's still many countries around the world are still paying that 10% rate, but then some of these new reciprocal tariffs which covers about. know about much more than 80 countries, I believe. Those tariffs are ranging from like 15 to 20%. There is all, and again, like it's possible that the baseline rate in all those other countries also moves upward to 15%. But if you look at our latest estimates, we pretty much find that the average. Apply. The tariff right now is basically 20%, and that's, you know, an average of all the countries. And that seems to just be, where things are going in general.

Kyle Hulehan: 27:52

Alex, thank you so much for being on the show today and talking about all of this. This is a, it's a complicated, messy situation right now, and there's, it's ever changing. And I know, we'll, we'll be talking about tariffs again'cause we always talk about tariffs on this show. I, I do wanna ask is, is there anything else that you wanna hit on this topic or any work that you're doing that you wanna plug right now?

Alex Durante: 28:10

I am planning to a blog post that will explore the impacts of tariffs on the pharmaceutical industry. So that's one thing to keep out for. But other than that, I mean, I'm, you know, doing my best to monitor the situation, update our tariff tracker on our website regularly. And it's that's certainly, you know, con consuming a lot of my time these days. But, you know, it's important that policy makers and Americans are aware of the impacts as policies continuing to have on the economy.

Kyle Hulehan: 28:36

And thank you Alex, for being on the show. So before we sign off real quick, if you have any burning questions on taxes, you can send'em ra drop a comment on YouTube. You can email us at podcast@taxfoundation.org or you can slide into our dms on Twitter. Thank you for listening.