Tariffs Uncertainty Remains as Businesses and Consumers Adapt

U.S. tariff policies generally haven’t hit the consumer checkout line yet, but the concern right now is the greater economic uncertainty that trade policies are creating.  

That was one of the many takeaways during a keynote address from Ernie Tedeschi, Director of Economics at The Budget Lab at Yale University, at our 20^th annual BMO Farm to Market | Chemicals Conference in New York. Tedeschi said that although the tariffs and market volatility can make it harder for some businesses to make decisions, the impact this year would unlikely lead to a recession.  

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While the U.S. decision to pause most of its retaliatory tariffs meant the levies didn’t have time to work their way into key data points like inflation, Tedeschi said that the full impact could add as much as 1.7 percentage points on top of the Federal Reserve’s inflation target of 2%.  

Those higher prices will come from businesses being forced to pass on some of the higher costs to consumers. “Even if it’s not 100% consumer pass-through, it’s going to be some significant non-zero consumer pass-through,” said Tedeschi, who is the former Chief Economist at the White House Council of Economic Advisers and former Managing Director and Head of Fiscal Analysis at Evercore ISI.  

In terms of what the tariffs could mean for an average household, he said it would be the equivalent of around $2,800 less in purchasing power per year, although it would vary by household.   

Globally, U.S. tariffs could cause China’s GDP to fall by 0.3% over the long run, with the U.S. experiencing a similar drop. It’s Canada that “really sees the worst of it,” he said, noting GDP could fall by 2.3% over the long term due to its dependence on the U.S. economy.   

To this: Tedeschi pointed out that the recent bilateral trade deals with the U.K. and China are notable because they show that future trade negotiations may be customized for different counterparties. 

Every country is approaching talks differently, he said. “China is taking a very different approach from Canada, Mexico and the U.K., in the discussions with the United States,” he explained. “China is not looking for low-hanging fruit, quick-win news, [or] making deals with the United States; it seems to be very much interested in following the contours of conventional diplomacy and established parameters for coming to trade deals, and that takes a lot of time.” Hopefully, that will lead to a more stable relationship, he added.  

In a Q&A with me after his prepared remarks, Tedeschi discussed the current outlook for tariffs and how they would impact economic growth, specifically in the food, consumer and retail sectors.  

Tedeschi said perishable goods, such as fresh produce, will likely show the effects of tariffs first because they can’t be held in inventory for long. Goods that can be stockpiled longer, such as alcohol and canned goods, could see price increases in a month or two. “Retailers like working through their existing inventory first, before they get to tariff inventory,” he says. Household goods, such as appliances, may not see price increases for three or four months.   

He said the agriculture sector, including raw and packaged foods and food manufacturers, will likely need to pass through price increases to items at grocery stores and restaurants. During his keynote, Tedeschi said that food prices could rise by 2.3% and hold there for an extended period.   

Amid rising prices, consumers tend to seek out lower-priced products. That could benefit private-label brands, explained Tedeschi. What’s notable is that these brands, which saw growth during the pandemic, could continue to attract consumers over the long term because their quality has increased in recent years.   

“Consumers who substituted with private label during the pandemic are much more likely than not to stick with private label even when prices fall and their income goes up. And that may have staying power at the end of the day,” said Tedeschi, who also does some consulting work with Nielsen.  

The industries that Tedeschi said could be hardest hit by tariffs so far are those exposed to China. A recent report from Yale’s Budget Lab shows the 2025 tariffs disproportionately affect clothing and textiles, with consumers facing higher shoe and apparel prices in the short run. Shoes and apparel prices could stay 19% and 16% higher in the long run, respectively, the report notes.  

What’s more, tariffs could boost the U.S. manufacturing sector. Over the long run, Tedeschi’s research suggests that U.S. manufacturing output could expand by 1.5% under these tariffs. Tedeschi said his modeling shows a 10% universal tariff would shave 20 basis points off U.S. GDP growth this year, which he described as a “normal annual headwind,” and makes a recession unlikely.  

“Not that 20 basis points is nothing – that’s about US$60 billion off of economic activity,” he said. “But now we’re in the realm of things that I think are much more manageable for businesses and consumers.”