Economists at the University of Wisconsin-Madison warn new tariff proposals from President Donald Trump could raise the price of essential goods, like food and electronics, for the average UW-Madison student, increase inflation and impact Wisconsin’s trade-reliant industries.
Since launching his campaign in 2022, Trump has repeatedly called for higher tariffs, proposing 25% tariffs on top trading partners Canada and Mexico, along with an additional 10% tariff on China.
Shortly after taking office, Trump signaled higher tariffs could come as soon as Feb. 1 if Mexico and Canada don’t take steps to stop the flow of illegal immigration into the United States On Friday, White House press secretary Karoline Leavitt announced that Trump will follow through on this deadline, citing concerns over “illegal fentanyl” distribution.
Trump announced incomes would “skyrocket” and inflation will “vanish completely” under his plan at the Republican National Convention in July. He also suggested his tariff policies would close the trade deficit gap, encourage American manufacturing and protect the U.S. from global economic trade exploitation.
But experts at UW-Madison warn these tariffs could do the opposite.
“It will be good for whichever industries are competing with foreign countries, but it won’t be good for the people overall,” UW-Madison Economics Professor Charles Engel told The Daily Cardinal. “Either there's inflation, paying higher prices, or there's slower growth, and the purchasing power of our income will be lower.”
Engel said even a 10% tariff rate could add up to a 0.4% increase in prices per year. Higher tariffs and prices could lead the Federal Reserve to raise interest rates to curb an anticipated price level rise, slowing growth and increasing unemployment, he told The Cardinal.
Even 10% tariffs are expected to increase consumer prices by up to 5.1%, according to Yale University’s Budget Lab. If Trump follows through on his more ambitious proposals — like broad 10% tariffs on all goods and 60% tariffs on all Chinese goods — tariff rates could be at levels the U.S. hasn’t seen since World War II, the Great Depression and possibly 1899.
Trump’s use of tariffs is not new. In his first term, Trump levied 30 to 50% tariffs on solar panels and washing machines from Southeast Asian countries, 25% on steel from Canada and Mexico and 10% on aluminum from Germany and Bahrain — some of which the Biden administration kept. Americans were handed nearly the entire cost of Trump’s tariffs on China, according to data from the U.S. International Trade Commission. When imposed, it’s U.S. importers paying for the tariffs, not foreign countries.
In his second term, Trump inherited a strong economy and low inflation, but these proposed tariffs could undo that progress.
While some domestic businesses could benefit from Trump’s proposed tariffs, certain trade-reliant companies could see production costs increase, UW-Madison economics professor Lydia Cox told the Cardinal. These costs typically get passed onto consumers and could result in businesses laying off workers to cut costs, Cox said.
“The research that has been done so far from the first ground of Trump's tariffs has shown that these negative side effects are worse than the direct benefits,” Cox said. “There are more losses because of these higher input costs than there are benefits from industries being protected.”
Cox also said countries targeted by tariffs could retaliate by raising tariffs of their own, like in Trump’s first term. These could be particularly impactful in a state like Wisconsin — the country’s 13th largest agricultural exporter — that sends billions of dollars in domestic agricultural exports abroad per year, according to data from the U.S. Department of Agriculture.
“When other countries decided to retaliate against the US, one of the things that they targeted was agriculture,” Cox said. “They put tariffs on things like soy, and that obviously has a big negative impact on a big part of the [agricultural] industry in Wisconsin,” Cox said.
These kinds of trade-reliant industries could see tariff revenues fall up to 26%, according to the Yale Budget Lab. On top of that, the Peterson Institute expects Trump’s tariff proposals, along with mass deportation, will raise inflation by up to 9.3%, affecting everyone.
Controlling prices, energy costs through tariffs
While many experts worry Trump’s trade policy would raise prices, others aren’t as certain. UW-Milwaukee economics professor Avik Chakrabarti expects Trump’s policies will instead control prices by reducing energy costs.
“It is a wonderful vision for the future to keep our air and water clean, but right now, what President Trump is going to do is he's going to do what he did in his first term: raise the volume of oil production, drilling and oil refineries and production and crude in all senses, so he can put the United States back in the front seat [to outcompete other countries],” Chakrabarti said. “Countries who are not energy self-sufficient would no longer have the edge when it comes to trading relations; shipping and production costs would go down, and consumers would pay less for their energy.”
Chakrabarti said Trump is using tariffs as a negotiating tool to target other countries, this time over illegal immigration. The U.S. buys more from China and Canada than the reverse, allowing the U.S. to tax others more and for retaliatory taxes to hurt the former less, Chakrabati told the Cardinal.
Meanwhile, Dan Seel – a UW-Madison graduate student studying International Political Economy – said universal tariffs implemented in a large, globally integrated economy like the U.S. would be difficult to model with precision.
“We don't know how the actual policy will shake out. Once the tariffs are implemented, many producers will likely try to get exemptions for their goods,” Seel told The Cardinal, citing Apple’s various exemptions during the first Trump administration.
If other countries retaliate with similar tariffs on American goods, inflation could reheat, Seel told the Cardinal. Seel also said Trump’s intended policies, like mass deportation and geopolitical provocations, could also contribute to increased costs, especially in industries that rely heavily on undocumented labor, like construction, agriculture and the broader service sector, or with geopolitically-sensitive goods like oil.
“This change in foreign and economic policy will land us in an unstable, chaotic, natural experiment,” Seel said.
