AILSA CHANG, HOST:
OK, now let's spend the next few minutes digging into what is happening with the tariffs and how much you are paying for things. President Trump spoke to reporters at the White House today, boasting about the money that the federal government is collecting from import taxes.
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PRESIDENT DONALD TRUMP: Already, we've brought in over $100 billion. We'll be bringing in hundreds of billions of dollars, and the tariffs really haven't kicked in that much other than automobiles and steel.
CHANG: Now, many American businesses have contributed to those billions as they're paying the tariffs, and the costs are starting to show up in store prices. So what does that mean for back-to-school or even Christmas shopping? Well, NPR economics and retail reporters Scott Horsley and Alina Selyukh join us now to help answer that question. Hey to both of you.
SCOTT HORSLEY, BYLINE: Hi.
ALINA SELYUKH, BYLINE: Hello, hello.
CHANG: Hello, hello. All right, Scott, I want to start with you. How big of a windfall is this tariff revenue for the government, and where is that revenue coming from exactly?
HORSLEY: It's substantial. Last month alone, tariffs brought in $27 billion, which is four times what the government raised from import taxes during the same month a year ago.
CHANG: Wow.
HORSLEY: Now the president would have you believe all that money is coming from other countries, just as he once promised that Mexico would pay for his border wall. In fact, while foreign suppliers might absorb some of the cost, it's U.S. importers that get the tariff bill. And this week's inflation data shows that some of the cost is now being passed on to U.S. consumers. The nonpartisan Tax Foundation calculates this amounts to the largest tax increase in more than three decades. But it's a sneaky tax increase because you don't get a bill from the IRS.
CHANG: Right.
HORSLEY: Instead, the cost just shows up in the price of everyday purchases at Walmart or Best Buy or the like. The Tax Foundation estimates that tariff-driven price increases will cost the average family $1,300 this year and $1,700 next year.
CHANG: OK, and Alina, so people are already starting to pay all of this right now?
SELYUKH: Yeah, to some extent. You know, price increases are only starting to show up at the big stores, but shoppers may start to notice them more at smaller stores. It's the small sellers on Amazon or your mom-and-pop shops that are having the hardest time covering the higher import bills from increased tariffs. Even though the biggest tariff hikes are still on pause, even with a 10% tariff, shop owners are having to front thousands of dollars in cash for their shipments, and they're having to make difficult choices. You know, like, do they still ship more? Do they hold their products in China and wait? Or is that too risky if tariffs skyrocket after August 1, as Trump has threatened?
HORSLEY: And the irony is, while Trump is warning of even higher tariffs on August 1, forecasters say that might not raise a lot more money for the government. For one thing, the president has a habit of backing down on his tariff threats. But even if he does follow through and boost the tariff on goods from Europe, for example, from 10- to 30%, as he's threatened, that doesn't mean the government's revenue would triple. Because beyond a certain price point, people just stop buying those imported products - no sale, no tax income. We saw that this spring when the tariff on goods from China briefly went to 145%, and the cargo traffic basically dried up. You know, any kind of tax has the potential to sway people's buying decisions, and the higher the tax is, the bigger that distortion is likely to be.
CHANG: Right. OK, so maybe businesses might pause shipments if tariffs skyrocket. Is that already happening, Alina?
SELYUKH: Yeah, talking to retailers, they seem to have three strategies for tackling tariffs. No. 1 is to stockpile products that got shipped in advance of tariffs and slowly sell them off. No. 2 is pay the higher tariff on shipments and eat some of that cost for now, delaying the big jolt to shoppers. And the third strategy is to raise prices now because you don't have any stockpile or cash cushion to eat the tariff. And depending on the store, people are doing a bit of column A, a bit of column B, a bit of column C. So you're seeing some stuff going up in price, like electronics, clothes, toys and especially appliances that are facing extra steel and aluminum tariffs, but prices aren't soaring dramatically across every store, at least not yet.
CHANG: At least not yet. You're saying not yet because I guess it is going to come.
SELYUKH: You know, I'm currently watching back-to-school shopping for higher prices, and there's an interesting dynamic playing out. A lot of retailers are putting huge value on this back-to-school season because they're worried that the holidays are just not going to be that great. And the idea is that more and more shipments from China or other countries are going to face higher tariffs, prices will rise, and shoppers who are already feeling jittery about spending are going to tighten their belts. And so retailers think, maybe let stuff - let's sell stuff for back-to-school while the going is good, get those dollars locked in now and gird up for whatever happens in the winter. At the Port of Los Angeles, which is America's busiest, executive director Gene Seroka had a bleak forecast.
GENE SEROKA: Lower inventory levels, fewer selections and higher prices are likely as we head into the holidays.
SELYUKH: He's saying shipments saw a bit of a pause in May as Trump seemed to shift his position on tariffs, and now importers are catching up, presumably to stockpile before August 1.
CHANG: OK. Well, Scott, the tariffs are one big piece of the president's agenda, of course, but another big piece is the Republican tax cut that passed earlier this month. How do these two items fit together? Do they?
HORSLEY: Well, the money the government collects from tariffs could help to make up for some of the money it's not going to collect in income taxes. So you could look at this as the government taking money from one pocket and putting it back in the other. But about 60% of the savings from the tax cut go to the wealthiest 20% of taxpayers, while the cost of the tariffs falls hardest on people towards the bottom of the income ladder. So the government is taking money from the pockets of blue jeans to put into the pockets of Armani suits. Economist Alex Durante of the Tax Foundation says that's not likely to be very popular.
ALEX DURANTE: If you were trying to convince the vast majority of America that you have their best interests at heart, a policy that is going to raise taxes at the bottom and then deliver a lot of benefits to the top, I think that's kind of a hard - I think that's a hard sell.
HORSLEY: The Federal Reserve came out with its latest Beige Book today. It's a roundup of economic conditions around the country, and it uses the word tariff 75 times.
CHANG: Wow.
HORSLEY: It says we're likely to see higher inflation towards the end of the summer as more of those tariff costs are passed along.
CHANG: OK, well, speaking of the Federal Reserve, President Trump was reportedly considering firing the Fed chair, Jerome Powell. What's been the reaction to that?
HORSLEY: Yeah. This is part of an ongoing pressure campaign by the White House, which wants the Fed to lower interest rates. Trump says he talked about firing Powell with a group of GOP lawmakers last night. Now, it's legally doubtful he has the authority to do that, but just the news he was thinking about it caused a brief sell-off in the stock market, and the president quickly backed down.
CHANG: That is NPR's Scott Horsley and Alina Selyukh. Thank you to both of you.
SELYUKH: Thank you.
HORSLEY: You're welcome.
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