The Death of Consumer Affordability

From Cars to Clothes, Tariffs Cost Lower-Income Consumers $1,700 Annually

It is important to remember that the stock market is not the economy.

According to the new report by the Yale Budget Lab, the hit to the regular American families’ pocketbook will be significant - as much as $3,800 annually.¹ Breaking that down a bit, a $2,100 hit from the “Liberation Day” tariffs announced on April 2 alone in the increased costs (just the import taxes alone) that companies will pass on to households. The tariffs that had been in place from tariffs on cars and commodities such as aluminum will layer on the additional cost that add up to the $3,800 estimate.

“The price level from all 2025 tariffs rises by 2.3% in the short-run, the equivalent of an average per household consumer loss of $3,800 in 2024$. Annual losses for households at the bottom of the income distribution are $1,700.”- The Budget Lab

U.S. real GDP effects

April 2 Only: The April 2^nd tariffs alone reduce the size of the US economy in both the short- and the long-run. US real GDP growth is -0.5pp lower in calendar year 2025 and -0.1pp lower in calendar year 2026. After 2026, the level of GDP begins to recover modestly as production and supply chains reoptimize. But in the long-run, US output is still -0.4% lower from the April 2 announcement. That’s the equivalent of the US economy being permanently smaller by $100 billion annually in 2024 dollars. Real exports specifically are lower in the long-run by -10% under the April 2^nd policy.²

All 2025 tariffs: Accounting for all the 2025 US tariffs and retaliation implemented to date, real GDP growth is -0.9pp lower in calendar year 2025 and -0.1pp lower in calendar year 2026. The level of real GDP is persistently -0.6% smaller in the long run, the equivalent of $160 billion 2024$ annually, while exports are -18.1% lower.

The “on again, off again” tariff has generally frozen global manufacturing and the supply chain.

The “On-Again, Off-Again” Tariff Strategy

Changing the supply chain in response to high tariffs is a massive undertaking and lasts beyond any one administration. The current response is to build buffers against this disruption. During the 3rd and 4th quarter 2024 earnings calls, we heard from the managements that they are piling up inventory, especially in the retail sector, before the tariffs and the “de minimis” rule removal went into effect. We are also seeing Chinese manufacturers ramp up production in low-cost places like Vietnam to allow for a way around the tariffs. The rhetoric around tariffs and unfair trade practices has been around for a while and spiked in 2016. So, Chinese manufacturers had time to invest in other countries that allowed them to create alternative manufacturing locations should such a scenario arise.

Companies are building buffers for critical products, passing along some of the costs in terms of price increases, cutting down on expenses and exploring other options. But, if the U.S. imposes high tariffs on Mexico, China, India and the European Union, and cuts off aid to major resource economies in Africa, there isn’t much room left for the global supply chain to move.

An easy example is food production. We grow most of our food in the U.S., so one might expect this sector to be insulated from the tariff shock. Not entirely, because the agricultural machinery, fertilizers, and seeds may all come from countries that are part of the tariff escalations. If these costs go up significantly, the food prices will also increase. This is the impact of a global supply chain that supports a national supply chain on the surface.

The market rally will not fix these core issues.

ORDER FREEZE

Dan Cannistra, a partner at Crowell & Moring who advises corporations on international trade said that, “Companies are absolutely frozen in place. They have no idea what to do.”

Clothing companies are grappling with the question, “Do we need to completely reevaluate our entire supply chain?” said Nate Herman, senior vice president of policy at the American Apparel and Footwear Association.

The industry sources from countries slated to face high rates of Trump tariffs, like Vietnam, Cambodia, Indonesia, and Bangladesh, Herman said, and imports 97% of the goods it sells in the US. Reshoring production often isn’t feasible, he added.³

Clothing and accessories retailers across the United States are delaying orders and freezing hiring ahead of tariff hikes that took effect on Wednesday on products imported from Vietnam (now 90 day pause) and China.

These businesses, like Nike and Lululemon, face an impossible choice: offset the cost of tariffs by raising prices by some 40%—potentially cratering sales—or absorb the cost increase and further strain already-thin profit margins.

Ian Rosenberger, CEO of Day Owl, a six-year-old New York company that makes backpacks in Vietnam, has paused future orders. Unless there's a deal to significantly lower Vietnamese tariffs.⁴

Yesterday, the Trump administration announced 90-day tariffs on most countries, except China, Canada, and Mexico. However, indecisiveness is an ongoing issue for the manufacturers.

But with a production cycle of about 100 days, waiting much longer risks missing the crucial back-to-school shopping season. "The damage is already significant enough to be an existential threat," Owl said, adding that his seven employees have been asking if they should prepare to be out of a job.

Footwear Distributors and Retailers of America - whose members include Nike, Walmart, Skechers, and Deckers - calculated that a $155 running shoe made in Vietnam would have to be marked up to $220 in U.S. stores to offset the 46% tariff.

The Unintended Consequences

Consumers can no longer afford basic needs. Companies will pre-emptively cut costs to shore up capital, which will trigger massive layoffs. A increase in prices, an increase in unemployment and a negative GDP growth is a perfect disaster that would take years to remedy.

The economic mess has just begun…this is not a “scare tactic” this is a reality check.”

1. https://budgetlab.yale.edu/research/where-we-stand-fiscal-economic-and-distributional-effects-all-us-tariffs-enacted-2025-through-april

2. https://budgetlab.yale.edu/research/where-we-stand-fiscal-economic-and-distributional-effects-all-us-tariffs-enacted-2025-through-april

3. https://news.bloomberglaw.com/in-house-counsel/escalating-tariff-war-freezes-corporate-supply-chain-changes

4. https://www.reuters.com/business/retail-consumer/clothing-retailers-delay-orders-freeze-hiring-tariffs-hit-2025-04-08/#:~:text=Summary,%2Dto%2Dschool%20shopping%20season.