The fallout from President Donald Trump’s punitive tariffs hit Wall Street first. Now it’s Main Street’s turn, as dramatically higher import costs start to ripple through the broader economy.
The full effects, including higher prices, out-of-stock items, and even empty shelves could be weeks or months away, say analysts. Many businesses scrambled to stockpile imported goods in March, and some people also bought items early, in anticipation of Mr. Trump’s tariffs.
But now U.S. importers are canceling or delaying orders from China, which is subject to tariffs as high as 145%, leading to a slump in shipments to U.S. ports. At the same time, some companies are front-loading imports from other countries subject to 10% tariffs before a 90-day pause ends on July 9, after which rates could spike again. The surge in pretariff imports caused the U.S. economy to contract in the first quarter, according to data released Wednesday.
Why We Wrote This
The levies are like a slow-motion wave, and when it breaks, people will experience things like higher prices and out-of-stock items. Even a major reversal on tariffs may not avert near-term shortages, since the supply chain has already been disrupted.
Some compare this process to a slow-motion wave. But most agree that at some point the wave will break and U.S. consumers, long accustomed to abundance and choice, will feel some pain – a pain generated by U.S. trade policy. Even a major reversal by the president on tariffs may not come in time to avert near-term shortages, since global trade has already been disrupted and it takes time to restart shipments.
Imports are slowing down “because importers are not sure what the ultimate demand for products will be. They know they have to raise prices because they are paying the tariffs,” says Jason Miller, a professor who studies supply chains at Michigan State University.
The White House has downplayed the impact of tariffs on Americans while insisting that the U.S. economy will ultimately benefit from the reshoring of manufacturing behind higher trade barriers. Officials have also argued that tariffs will bring in revenues to offset a congressional plan for lower income taxes that will put more money in peoples’ pockets.
Treasury Secretary Scott Bessent told reporters on Tuesday that retailers had “managed their inventory” and that he didn’t expect any shortages of consumer goods, as happened in 2020 during the pandemic. “I wouldn’t think that we would have supply chain shocks,” he said.
One day later, though, Mr. Trump seemed to undercut that message, when he said U.S. imports from China were mostly goods “we don’t need” and shrugged off higher prices. “Well, maybe the children will have two dolls instead of 30 dolls, you know? And maybe the two dolls will cost a couple of bucks more.”
The Trump administration has said that it’s negotiating with dozens of countries to strike trade deals, though experts say such agreements rarely come to fruition quickly and that major partners like the European Union and Japan will seek U.S. concessions in turn.
But there are no indications that talks with China have even started. And when they do, they are likely to prove highly contentious, given the overlay of security and political tensions on top of trade arrangements. For now, many Chinese-made products that U.S. manufacturers and retailers rely on have become unaffordable to import without tariff exemptions, which have already been granted to smartphones and laptops.
For shoppers, the disruption to trade with China will particularly impact home goods, toys, and kitchen appliances, says Professor Miller. “For many of these goods there are no alternatives” to those made in China. The shock won’t be immediate, given existing large inventories, he says. But by June or July, made-in-China products could become unavailable or sold at much higher prices.
Other forecasters agree with that timeline. In a recent presentation, Apollo Global Management, an asset-management company, predicted that shipments of Chinese goods to U.S. ports will stop arriving mid-May, triggering layoffs at U.S. trucking and logistics companies by early June. Many small businesses, including family-run retailers, could be forced into bankruptcy over the summer, leading to what Apollo dubs “The Voluntary Trade Reset Recession.”
A supply chain shock
To be sure, Wall Street has wrongly forecast previous U.S. downturns. In 2022, many predicted a recession under President Joe Biden that never happened. But this time seems different, says James Knightley, chief international economist at ING Financial Markets in New York. “It feels as though there’s more anxiety right across the income spectrum,” he says.
For people who own stocks and bonds, last month’s market tumult has shaken their confidence. And those who don’t hold investments are increasingly worried about the effect of tariffs on prices. “The dollar in your pocket just isn’t going to go as far,” says Mr. Knightley.
Chris Lianos runs a wine shop in Somerville, Massachusetts. His range of domestic and imported products hasn’t changed yet because distributors stocked their warehouses ahead of tariffs, but he’s noticed that customers seem worried about the economy in ways that are already affecting their purchases. “People are holding back. It’s the uncertainty of what comes next,” he says.
As inventories run low, Mr. Lianos expects to see some price rises by the summer on imported wines and spirits, so he plans to substitute or switch brands. “Maybe we’ll get a better deal from the California wineries,” he says.
The last time shoppers confronted empty shelves was in 2020-21, as pandemic restrictions sharply restricted the available supply of goods while panic buying and fiscal stimulus drove up demand. Lockdowns in China, Vietnam, and other exporting countries left buyers chasing fewer products, fueling inflation.
This time is different, say analysts, because unilateral tariffs have short-circuited supply chains to the United States.
“This is a supply shock not because we can’t produce but because no one wants to bring nearly the same quantity of [tariffed] goods,” says Professor Miller.
The cancelations of U.S.-bound shipments that have already occurred mean that even if the Trump administration were to drop all tariffs, it could take months for retailers to restock shelves, says Carol Spieckerman, a retail consultant based in Arkansas. Retailers have technology to manage pricing and product range, but it only goes so far. “How do you adjust pricing when you’ve got a 145% tariff? You’re no longer talking about the normal rules and variables that affect prices,” she says.
Small businesses most at risk
Diversified retail chains are better equipped to navigate supply shocks than specialty retailers, such as baby supply stores. Last week the chief executives of Walmart, Target, and Home Depot met with President Trump and warned him it would be hard to avoid price hikes, though they were working to keep prices low, The Wall Street Journal reported.
One advantage major retailers have is they can hold imported products in bonded warehouses and not incur customs duties immediately. The greater pain will be felt by small companies that source their products from China to sell in big-box stores, says Ms. Spieckerman. “It will be the nail in the coffin for some of these smaller brands.”
One of those businesses, a woman-owned stationery company in Florida, filed a lawsuit last month against the Trump administration’s use of emergency powers to impose tariffs that it alleged had “inflicted economic and competitive harm.” The company, Simplified, sells its colorful planners to big-box stores and to fashion and lifestyle retailers.
On Wednesday, the U.S. Chamber of Commerce asked the Trump administration to grant tariff relief for small businesses, warning that they faced “irreparable harm.” In a letter addressed to Mr. Bessent, Commerce Secretary Howard Lutnick, and Trade Representative Jamieson Greer, Chamber CEO Suzanne Clark called for “immediate actions to save America’s small businesses and stave off a recession.”
Any relief can’t come too soon for Robert Berman, whose company, Rasta Imposta, designs Halloween costumes that are sold mostly in big-box stores. He needs his product to ship from China now so it can be in stores by the fall. Until recently, the tariff on made-in-China costumes was negligible. Now his goods “are sitting in containers, because 145% is just astronomical.”
Mr. Berman, who employs 12 people based outside Philadelphia, says he’s previously looked into manufacturing alternatives to China, such as India and Mexico, but none has measured up to what his Chinese partners can produce. Nor can he find domestic factories who can fill orders. So he’s waiting to see if a change in policy will happen, allowing him to bring in his Halloween costumes on time. “If we can’t get our product in we’ll have to close our doors and put everyone on furlough,” he says.
Toymakers and Christmas retailers face similar time pressures, since it takes months to produce and ship products from China, the main supplier of toys and holiday decorations. Many in the industry warn that Americans are likely to face a toy shortage during the run-up to the holidays.
Oct. 31, however, comes even earlier. “If Donald Trump doesn’t move quickly, it’s going to come in too late,” says Mr. Berman. Nobody wants to buy a Halloween costume on Nov. 1.
