Tuesday, President Donald Trump’s order to impose tariffs of 25% on imports from Canada and Mexico — to curb illegal immigration and fentanyl trafficking — were paused for 30 days at the last minute as both countries agreed to send troops to their borders. At roughly the same time, China, on which the administration had imposed a 10% duty on goods, retaliated with levies on oil and gas. Just two days prior, the world watched as stock indexes in the United States fell along with shares in Asian manufacturers and European carmakers as investors worried that tariffs will disrupt trade and supply chains.
As the news was breaking, ÑÇÉ«ÊÓƵ News asked Old Dominion professors Bob McNab, chair of the Department of Economics and director of the Dragas Center for Economic Analysis and Policy, and Ricardo Ungo, clinical assistant professor in the Department of Information Technology & Decision Sciences, about how the tariffs might affect the national economy and regional cargo traffic.
McNab said at the Dragas Center’s Economic Forecast held last week that in the worst-case scenario, higher tariffs coupled with immigration actions, could accelerate inflation and the national and commonwealth economies could plunge into recession. Now, he adds that if tariffs remain in place for a year, the cost to the average American household could be $1,000-$2,000.
What is a tariff?
Professor McNab: A tariff is a levy on the importation of a good into a country. A tariff, for example, on avocados, would basically be a tax on the importation of avocados into the United States. Tariffs can be levied on a dollar basis or a volume basis, but they are, at the end of the day, a tax on foreign goods being imported into the United States.
What are possible economic results of tariffs for the US economy?
Professor McNab: The underlying question is always how long will the tariffs be in place? If the tariffs go into effect and last a significant period of time, they will raise the prices of goods being imported into the United States and the prices of similar goods being produced in the United States. So, tariffs, being a tax, raise the price of a good, imported and often domestic producers take that opportunity to raise their price as well. The estimates vary because we just don't know how long the tariffs are going to be placed. But if they were in place an entire year, the cost to the average American household would be more than $1,000 or $2,000.
What goods will be most affected?
Professor McNab: If you look around at what you consume on a daily basis, the price of many goods will increase. So right now, we are in winter in Hampton Roads. So where does your fruit come from? It comes from Mexico. Where do your shoes come from? Or your electronics? Some will be made with parts from around the world but assembled in China. So, the price of a phone will go up. Approximately 40% of lumber supplies in the United States originate in Canada, so the price of drywall, the price of home construction and the price of home renovation will increase. Energy prices will start to increase as well, because we'll see the ripple effects of the tariffs on oil and natural gas work their way throughout the US economy.
How will tariffs affect the average American regarding cars and other goods?
Professor McNab: The first immediate impact is going to be on the car industry, because car supply chains stretch across international borders, and supply disruptions to the industry will quickly lead to car plants shutting down for the lack of parts. We'll then see the price of fruits and vegetables start to increase in grocery stores, followed by goods such as tequila from Mexico. And then, of course, we'll start to see the price at the pump start to rise. The price of your iPhone, car speakers, TVs will start to increase as the tariffs take a bite. And of course, we can't forget that other countries are levying tariffs and retaliation, and so the goods we export will decline. So, you're getting two effects: you're getting prices increasing and exports slowing, so that can lead to lower employment and job growth.
Can tariffs lower the amount of fentanyl coming into the country and solve the immigration problem?
Professor McNab: That is a hard question, because that's a very broad metric. A 2024 study by the Cato Institute found that about 80% of fentanyl seized at legal points of entry was being brought in by US citizens. So, whether tariffs can actually address that is a significant question that I think nobody knows. Fentanyl is an obvious problem, but if US citizens are bringing it in through legal ports of entry, tariffing goods by itself may not have that much of an impact. If you're arguing that tariffs are a negotiating tool to get countries to toughen up immigration policies, controls on the border and drug smuggling then, yes, if those countries agree, it will have an impact on illegal immigration and the amount of fentanyl coming into the United States. The open question will be how much of an impact, something we won’t know until after it happens.
Dr. Ungo said the impact of these tariffs will not likely be recognized immediately.
How will the tariffs on China affect regional cargo traffic?
Professor Ungo: The top five commodities imported from China in containers are toys, heaters, seats, tableware and furniture. In Hampton Roads, imports from China account for more than 80% of all toys, more than 30% of all seats, and 18% of all containerized furniture. China responded to the US tariffs with retaliatory tariffs on specific types of coal and other products. In terms of the Hampton Roads seaborne exports, China is the destination for 8% of all coal tons exported from the region.
What are the potential financial damages that can be expected?
Professor Ungo: In the short run, it is not anticipated to have a significant impact given the import commodity mix for Hampton Roads from China. As the tariffs were announced in November, many importers should have taken the opportunity to accelerate their import shipments to receive the cargo before the implementation of the tariffs. The inventory at hand will provide a buffer against the new tariffs.Â
In the medium term, once the inventories are down and the new orders placed, some impacts will start to be felt. For example, in the case of toys, we are currently out of season and the effects will be more significant in the next season.
For exports, we will need to monitor if additional retaliatory tariffs might be levied on different exports from Hampton Roads, such as soybeans and wood (in the rough and sawn). China imports about 15% of Virginia soybeans and about 50% of wood exports (sawn and in the rough).
What types of businesses will be most affected by tariffs on China?
Professor Ungo: Businesses that rely heavily on Chinese imports and do not have the possibility to transfer the cost of the tariff to their customers.Â
Can you provide an example of how prices for goods or produce might increase?
Professor Ungo: For example, in the case of furniture, once the current inventory runs out, 18% of the furniture will increase 10%. However, there are several options. The importer could pass the whole 10% to the client. If the price of the substitutes does not allow to pass the whole 10% to the customer, the importer will need to absorb part of the increase. The importer could try to look for an alternate supplier, or the importer can talk to the supplier to analyze if they can adjust the price to partially offset the tariff.
Photograph courtesy of Virginia Port Authority.Â