MW Expect rising prices, supply shortages as tariffs tear the fabric of the economy

By David Blond

Yet another tariff pause boosts stocks - but Trump's trade war is still coming for your money

The best of times for Wall Street, but not for American consumers, small retailers and manufacturers.

U.S. investors misunderstand how important American consumers are to the world. The truth is that outside of food grains, the world can do nicely.

So President Donald Trump's threatened 50% tariff on products from the European Union, now on pause until July 9, is nothing for Wall Street traders and investors to cheer. Tariffs add costs and logistics bottlenecks to already damaged supply chains. The U.S. isn't yet experiencing the full impact - but it's coming.

Americans will be hurt most by tariffs. Trump has declared economic war on the world without understanding its true power dynamics. His trade war has already damaged hard-won gains for U.S. exporters of manufactured goods and food products.

Trump's retreat on E.U. tariffs came almost immediately once European Commission President Ursula von der Leyen agreed to begin talks, but she knows better than Trump that the new global power dynamics put the E.U. squarely in the drivers seat. Despite Trump's bluster, countries are sovereign and they set the rules for health and safety for their citizens.

Walmart's $(WMT)$ pronouncement that it will raise prices to cover tariffs is an honest statement of fact. Even just finding an electrical or plumbing part will become more difficult and more costly. Walmart, Target (TGT), Amazon.com $(AMZN)$ and other retail giants can afford to pay the heavy upfront costs of clearing customs and transportation. But wholesalers that serve small manufacturers and retail shops on Main Street can't easily afford upfront costs of transport and higher tariffs, or take the risk that they can't pass price hikes to these small shops and stores.

Bye American

Trump is attacking imports from every country the U.S. trades with. China is singled out, but higher prices will disrupt the U.S. economy and cost companies and consumers, (from both in-stock inventories or new supplies), squeezing already tight budgets.

Consumer spending (70% of GDP) is divided into 16 differentcategories of spending each purchasing from one of more than 150 individual sectors. And measuring the foreign content of American consumption isn't easy. Consumers spend on different categories - food, fuel, transport, entertainment to name just a few. A careful analysis using input-output models of the U.S. economy can measure the foreign content for each consumer dollar. So for example, 66% of clothing and apparel content is foreign, while for restaurants and hotels this figure is about 8%.

Inevitably, links in the domestic supply chains for small companies will be damaged and the actual cost to the economy far worse. Prices and availability that Americans find for goods will be impacted, whether wholesalers and retailers pass on the higher costs or decide not to pay the tariffs and hope that Trump changes his mind again.

Main Street vs. Wall Street

The Trump administration's tariffs put Main Street America's redevelopment and growth at risk.

Wall Street cheered Trump's reversal on Chinese tariffs, then panicked at his 50% tariffs on Europe, then cheered the pause. But the real pain from all of this volatility and uncertainty is hitting small retail stores and manufacturers, which are affected by any tariff beyond the 2%-3% range on which they've modeled their business plans.

Tariff pain also extends broadly to the revitalization of small-town America. Rebuilding their downtown shopping and business areas is a goal for many smaller U.S. cities and towns. Opening parks along rivers or abandoned railroad tracks and closing streets, providing incentives for restaurants to open by offering outdoor table space, and subsidizing rent for boutique shops, have all breathed new life into towns in red and blue states alike.

So maybe it's the best of times for Wall Street, but not for America's consumers, small retailers and manufacturers. The Trump administration's tariffs put Main Street America's redevelopment and growth at risk when local boutiques and other stores close because suppliers can't restock inventories, and higher prices force customers to spend less or not at all.

Trump is even attacking specific companies with random tariffs as he dictates what he believes are his terms for a ceasefire in this war on the U.S. economy and America's world standing. U.S. Federal Reserve Chairman Jerome Powell is right to hold back on rate cuts; the Fed will need leeway once the full effects of this economic lunacy are fully felt - in unemployed workers and shuttered stores and factories.

David Blond is an economist specializing in global economic analysis. He was a senior economist at the Pentagon during the Carter and Reagan administrations. His is the author of "The Phoenix Storm," a novel about the aftermath of a global financial market collapse.

More: Investors really want to believe Trump on tariffs - but the truth will hit them soon

Also read: Empty shelves, for-lease signs and job layoffs point to recession by summer

-David Blond

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May 28, 2025 07:20 ET (11:20 GMT)

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