Dr. Kyle Handley: Tariffs and consumer prices
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Tariffs are a central component of the Trump administration’s approach to the economy and foreign relations.
On Wednesday, March 19, 2025, SciLine interviewed: Dr. Kyle Handley, an associate professor of economics at the University of California, San Diego. See the footage and transcript from the interview below, or select ‘Contents’ on the left to skip to specific questions.
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Introduction
[0:00:19]
KYLE HANDLEY: My name is Kyle Handley. I am associate professor of economics at the UC San Diego School of Global Policy and Strategy, and I study trade policy and the dynamics and responses of firms to changes in trade policy, trade agreements, tariffs and its impact on the economy.
Interview with SciLine
What are tariffs and what is the current state of tariffs in the U.S.?
[0:00:49]
KYLE HANDLEY: So, tariffs are a tax that’s paid at the border on goods that are imported into a country, so the United States, in this case. The current state in the U.S. is certainly in flux. We have traditionally had very low tariffs on most imports into the United States or exceptions on certain goods. But starting with the Trump administration in 2018, they began raising those tariffs on particular products like steel and aluminum, and again, certain countries like China. There was a bit of a pause in that during the Biden administration, and in the last few weeks, they started raising them again on China, on aluminum steel, and then threatening to raise tariffs on a variety of other products, putting them on and then taking them off one day after the next.
Can you elaborate on when and how U.S. tariff policies have been changing in recent years?
[0:01:49]
KYLE HANDLEY: They started to change in early 2018, during the first Trump administration, I would say, prior to that time, we had had fairly low and stable tariffs since probably the early 1980s. When they were low enough that there wasn’t much trade liberalization left to do other than trade agreements. The Trump administration hit out at a couple different things. One was solar panels and washing machines, which was a small share of trade. But then they went after steel and aluminum products, and those tariffs were quite a bit higher, depending on which metal we’re talking about, anywhere from 10% to 25%, and followed that up with a cascade of tariffs over the course of the next 18 months on China, ranging from 10% to 15% to 25% on a variety of products, from consumer goods to intermediate inputs, which are parts and things that we use to make other goods and capital equipment, all of which was coming from China.
How do tariffs impact the cost of consumer products?
[0:03:04]
KYLE HANDLEY: There are certain goods that are like—it depends on what you think of as the end outcome that we’re looking at. So, the initial rounds of tariffs that the Trump administration put on back in 2018 and 2019, because they were on what we think of as an economist, intermediate inputs, or intermediate goods, so things like metal and steel, which we fashion into other parts and then use to build a car. They also did the same thing with the tariffs on Chinese imports. They were primarily targeted intermediate goods. Why did they do that? Well, they did it because, one, they were trying to protect the steel and aluminum industry specifically, but they also didn’t want all of the, you know, low-cost Chinese goods that we see on the store shelves in Target and Walmart, at the grocery store even, to have price increases shortly after they put the tariffs in place. So, because they tariffed intermediate goods, those sort of work their way through the supply chain, and it doesn’t mean that there were no costs to them. It just means that the buyers and sellers of those products along the supply chain basically split up, you know, the tariff, and in some cases, absorb those costs in terms of their profits. They might have absorbed those costs in terms of hiring fewer workers or possibly paying few lower wages. And so the impact on the consumer at the point of sale, where you’re buying the good at your local Walmart or your Target, or even if you were buying a new car the price increases had kind of already been built in, and it wasn’t as obvious, I think, to the final consumer, what had happened, even though there definitely were costs of those tariffs for businesses and firms and potentially on their workers as well.
Are certain categories of products disproportionately impacted by tariffs?
[0:05:05]
KYLE HANDLEY: So, anything that’s being imported from China is at least 20% more expensive than it was about a month ago, and that’s on top of the tariffs that have never been taken off for the most part, from Trump’s first term.
How do tariffs levied by trade partners compare to the new tariffs imposed by the U.S.?
[0:05:27]
KYLE HANDLEY: So, the response of trade partners in terms of retaliation has not been too severe at this point, so they haven’t been retaliating like for like in the first trade war. If the U.S. put tariffs on $50 billions of additional goods from China, China would turn around and put tariffs on $50 billions of U.S. exports, not the same products, but $50 billion or so. Canada, the European Union, in response to, you know, the new tariffs on steel and aluminum, they’ve all been either announcing, but not necessarily implementing retaliation, and the tariffs that have been put in place have been very targeted. I think that’s why we’ve seen a lot of news about tariffs on whiskey coming from the United States. They’re trying to hit goods that impact states that are kind of—in our political parlance—red states that are maybe important to President Trump and his supporters and are heavily targeted. They want to concentrate those losses on particular industries in particular states that are important to the administration. A lot of those tariffs haven’t actually been put in place. They just announced that we have a list, and if you continue with the tariffs that you’ve announced in terms of the U.S. or that you’ve already put in place by this date, we will retaliate against you. And so, Canada has followed through on some of that, but they’ve also got a list of things that are on the docket, if need be. The European Union has essentially done the same thing.
How do tariffs levied by trade partners compare to the new tariffs imposed by the U.S.?
[0:07:07]
KYLE HANDLEY: I think they realize that they’re in a negotiation with Trump and the Trump administration. The retaliation is not free, so it’s costly for them in the same way that it’s costly that the U.S. is putting these import tariffs on our own imports, and people are gonna have to pay these higher prices. The European Union or Canada, like they don’t necessarily want to pay higher prices on imports from the United States. They don’t want the Jack Daniels whiskey to be more expensive. That’s not necessarily good for them, but they view it as it’s like the third or fourth best policy response, given that we’re in this situation in the first place. And so, they’d rather negotiate and try to figure out what the Trump administration actually wants and just use those as a negotiating tool. But if they’re lucky, and they figure out what the Trump administration wants and they’re able to deliver that, perhaps they won’t follow through with the retaliation.
President Trump often cites trade deficits as a reason for imposing tariffs. What are they?
[0:08:03]
KYLE HANDLEY: The trade deficit is the difference between the amount that the United States exports and the amount that it imports, and so if we export less than we import, we’ll have a trade deficit. Overall, the United States does have a trade deficit with the rest of the world. The Trump administration is hyper focused, though, on what economists call bilateral trade deficits. So specifically, like, are we importing more from China than we export to China? And likewise with Canada, with Mexico, with various countries in the EU and so each of those bilateral trade deficits the Trump administration views is some evidence that we’re being treated unfairly. Economists, most of us would disagree with that and argue that, you know, we—as consumers, we have lots of bilateral trade deficits. So, you receive wages from your employer, but most people don’t buy things from their employer and but overall, your your budget has to balance at the end of the day. But the U.S. can also run even overall, a trade deficit with the entire world, and it balances because it’s made up by foreigners basically investing in U.S. securities like treasury bonds and bills. Doing direct foreign investment in the United States in terms of factories, in terms of buying property, setting up operations. And that’s where sort of things balance out over in any given year, actually. The other thing that I think the Trump administration misses about the focus on trade deficits is they only talk about goods, and so they’re hyper focused on manufacturing. And if you look at the trade data, the United States actually runs a trade surplus with the rest of the world of about $290 billion as of 2024 in services. And so, the U.S. export services, like education, like financial services, like digital services that the things that Google provides—the software that big companies like Microsoft and Amazon are providing to the rest of the world. And those sort of things are being ignored, but they’re an important part of the U.S. comparative advantage in trade, and we export far more services than we import, and that’s why we have this trade surplus. But I think it’s worth considering, because some of these countries that are being hit with new tariffs will eventually, they’re wise to this, and they will eventually retaliate against services as well and try to hit those sectors of the economy that are particularly strong.
How does uncertainty about current and future tariffs affect business hiring and investments?
[0:10:54]
KYLE HANDLEY: The environment right now with respect to trade policy is about as uncertain as it could be, especially with the administration announcing tariffs on Monday and then taking them back off again, say, on Wednesday, and then refining the way that they’ve done that by Friday. And so, this creates an environment where businesses in the United States that, you know, were looking to get into new export markets now worried that there may be retaliation from our foreign partners, or they may have been trying to import a new part from a supplier in China, from a supplier in Mexico or Canada, even, and now they’re not sure what the cost is going to be. And so, what happens in those situations is firms will just decide to wait and see, because the uncertainty is so high. And you might think, Okay, well, in a couple months, it’ll be more obvious what the Trump administration wants, what the Trump administration is going to do. But there those things may not be credible anymore, and so when tariffs are coming on and off, like week by week or day by day, the best thing for firms to do is wait and see, and that means they may put off investments in capital equipment for a factory that they’re running. They may not hire some workers. They may not open a new establishment or new operation somewhere in the United States because they’re worried that the thing that they’re trying to export to the rest of the world may be subject to retaliation, and that’s going to hurt them on the demand side, but they’re also worried that they’re going to pay higher costs because some of the parts and intermediate goods that they import are now going to be more expensive, and that’s basically going to hurt their bottom line. They may no longer be profitable. So, what you do is you don’t hire the new workers. You don’t bring the new product line out. You kind of wait to see what the administration is going to do, and those things will take time to shake out. There’s a bunch of foregone investment that’s basically not occurring right now—foregone hiring that’s not happening. And we’ll pay those costs down the line. When you know businesses basically are behind on retooling their factory, they’ve let things depreciate, and they have to catch up. It would have been better if they had a credible, stable trade policy environment in which they were operating.
Can tariffs provide a boost to the U.S. manufacturing and production?
[0:13:25]
KYLE HANDLEY: I mean, they’re beneficial to the specific industries that are protected. So, if you put high tariffs on steel workers in the steel industry, the major firms in the steel industry that produce steel are going to benefit from those higher prices, and so they may hire more workers. It may translate into higher wages for the workers that they have now. It may also just translate into higher profits for the steel industry or the aluminum industry. But people should understand that those higher profits are coming at the cost of expenses that consumers who are buying steel overseas or even buying steel in the United States are going to pay higher prices. So, one of the things people often say in response to, you know, arguments like I’m making that, you know, hey, this is really costly for consumers, is, well, just buy it from an American company. But the whole point of the tariffs, and steel is a great example, is that it’s going to raise the price of steel in the United States. So even if you have a U.S. supplier, they’re not exposed to as much international competition. And so, the price of the steel that they’re selling, and it’s American made steel to an American company, is going to be higher. And so, it may benefit this concentrated pocket of, you know, aluminum steel producers and their workers, but it’s very costly to everyone else. And it could actually mean that we add some steel jobs, but we lose jobs in the auto sector, and we lose jobs in, you know, in aerospace, where they need a lot of aluminum, they need a lot of steel to make a Boeing passenger airliner.
