Table of Content:

• Why Everyone's Talking About U.S. Tariffs on Goods and Services

• What Are Tariffs?

• How Tariffs Could Lead to Inflation

• Understanding Trump’s Proposed Tariffs

• Will Tariffs Drive Inflation Higher?

• How Tariffs Might Lead to Higher Electronics Prices

• How Over Consumer Spending & Increased Costs Are Driving BNPL Usage and Cash Flow Issues

• The rising popularity of Buy Now, Pay Later (BNPL) services

• Delayed Payments and Delinquency

• Adverse Effects on Debt Recovery

• Conclusion 

Why Everyone's Talking About U.S. Tariffs on Goods and Services

The global conversation surrounding tariffs is the most trending topic since the U.S. announced that a new round of tariffs will take effect on August 1, with consumer electronics set to bear the brunt of the impact. President Trump’s tariffs on Chinese imports, including smartphones, laptops, and gaming consoles, aim to protect American businesses but have led to higher prices and job losses in these key industries as they highly depend upon the imports from other countries. Tariffs on steel, aluminium, and Chinese imports have increased costs, fuelling inflation and economic uncertainty. Retaliatory tariffs on U.S. exports have further contributed to stock market volatility. As The Economics Times reports, “Trump’s tariffs have had a major impact on the U.S. economy, leading to higher prices for consumers and job losses in key industries, acting as a hidden tax on working-class families.”

While not all products will see immediate price hikes, electronics are expected to face significant increases in the coming months. Earlier this year, Trump’s administration reached a temporary trade deal with China, pausing tariff hikes for 90 days but maintaining existing tariffs. With the pause set to end in August 2025, uncertainty remains. Meanwhile, countries without formal agreements are facing pre-April tariff levels, which could push electronics prices higher. Retailers are bracing for the impact, anticipating price pressures before back-to-school shopping and the holiday season, prompting many consumers to adjust their buying habits.

What Are Tariffs?

Tariffs are taxes imposed by a government on goods and services imported from other countries. Think of a tariff as an additional cost added to foreign products when they enter a country. Typically, tariffs are calculated as a percentage of the price of the goods, and the level of the tariff can significantly impact its effects on both prices and trade dynamics.

Why Do Governments Impose Tariffs?

1. Raise Government Revenue: Tariffs serve as a source of income for governments, contributing to national revenue.

2. Protect Domestic Industries and Correct Trade Imbalances: By imposing tariffs, governments shield domestic industries from foreign competition and discourage the consumption of imported goods, encouraging consumers to buy local products.

3. Political Tool for Negotiations: Tariffs can also be used as leverage in trade negotiations or as a political tool to apply pressure on foreign governments.

As Joe Rodriguez, Associate Professor of Finance at Eastern Michigan University, states, "Tariffs are often used as bargaining chips, leading to exemptions or scaled-back versions during talks. Tariff policies can evolve quickly, with exemptions, deadlines, and diplomatic negotiations constantly reshaping the playing field."
— The Fortune

How Tariffs Could Lead to Inflation

President Donald Trump's tariffs have been a key element of his economic strategy, aimed at reducing the U.S. trade deficit and supporting domestic manufacturing. However, many economists warn that these tariffs may contribute to inflation by increasing the cost of imported goods and services. Here’s how:

• Higher Costs for Imported Goods: Tariffs increase the cost of importing goods like electronics, cars, and raw materials (e.g., steel, aluminium), which businesses pass on to consumers.
  
  

• Impact on Manufacturing: Increased costs for raw materials raise production costs for manufacturers, leading to higher retail prices for products like vehicles, household goods, and electronics.
  
  

• Adjustment of Tariff Deadlines: While some tariffs were paused, others have been extended, with many now set to take effect by August 1, 2025. This uncertainty adds to price fluctuations.
  
  

• Rising Prices: Retailers are bracing for price increases, especially on goods that depend on global supply chains. This could affect consumer spending decisions.
  
  

• Inflationary Pressure: As businesses pass higher costs on to consumers, it results in inflation, reducing purchasing power. This can make everyday goods more expensive and erode savings.
  
  

• Potential Economic Strain: Long-term inflation could lower living standards, particularly for households with fixed incomes or wages that don’t keep up with rising prices.

Understanding Trump’s Proposed Tariffs

President Trump proposed a sweeping tariff plan aimed at reshaping U.S. trade relations. Central to his plan was a universal 10% to 20% tariff on all imports, with an additional 10% levy on Chinese goods. He also suggested imposing a 25% tariff on imports from Canada and Mexico, the U.S.’s largest trading partners.

"Take for example China, the most likely target for additional tariffs," says Laurence Ales, Professor of Economics at Carnegie Mellon University’s Tepper School of Business. "Today, the largest category of imports from China into the U.S. is electrical machinery. This broad category includes everything from telephones and computers to batteries and toys. Essentially, almost any consumer good is at risk of higher prices."

To implement and manage these tariffs, Trump has announced plans to create an External Revenue Service, similar to the role of the Internal Revenue Service. While Trump argues that these measures will boost domestic manufacturing and address trade imbalances, economists warn that they could lead to higher consumer prices, retaliation from trading partners, and slower economic growth.

“Consumer electronics often rely on components sourced from numerous countries, so tariffs on specific parts can raise overall retail prices,” says Joe Rodriguez, Associate Professor of Finance at Eastern Michigan University. “Large appliances and household goods that depend on steel and aluminum could also see sharper price increases if the raw materials become more expensive.”

Will Tariffs Drive Inflation Higher?

Laurence Ales, Professor of Economics, notes that tariffs contribute to higher inflation by increasing the cost of imported goods, which in turn raises overall consumer prices. "This inflationary pressure reduces consumers’ purchasing power, as their income does not stretch as far as it did before the price increases," he says. "In the long run, sustained higher inflation can erode savings and reduce the standard of living for households."

When manufacturers spend more on inputs, they compensate by marking up their final goods. “If this persists, consumers see a decline in their purchasing power, especially those on fixed incomes or with wages that do not keep pace with rising prices,” Rodriguez adds. “In response, the Federal Reserve might raise interest rates to mitigate inflation, which in turn would make mortgages, auto loans, and credit card debt more expensive.”

How Tariffs Might Lead to Higher Electronics Prices

Tariffs are taxes imposed on imported goods. When the cost of importing rises due to tariffs, businesses face a decision: absorb the extra cost or pass it on to consumers. For electronics, particularly high-ticket items with already slim profit margins, the likelihood of passing on the cost to consumers increases, especially once current stock is sold out.

Impact on Global Supply Chains: Most electronic devices rely on global supply chains, with critical components like chips, batteries, displays, and wiring sourced from various countries. China plays a major role in both sourcing and assembly, and the imposition of tariffs on Chinese imports affects the cost of many electronic devices.

Electronics Likely to Face Price Hikes: As tariffs take hold, some electronics are expected to see significant price increases. Items most at risk are those heavily dependent on Chinese components or those with historically tight profit margins, where manufacturers have little room to absorb rising costs. Here's a closer look at categories to prioritize before prices go up:

1. Smartphones: Smartphones, including high-end models like the iPhone and Galaxy, are among the most globally integrated products. With tariffs affecting not just top brands but also budget-friendly Android phones, prices are expected to rise. If you're due for an upgrade, it might be smart to purchase now before costs increase, especially as new models hit the market. Retailers may offer promotions, but the price hikes could gradually take effect.
   
   

2. Game Consoles: Game consoles, like the Xbox, PlayStation, and Nintendo Switch, have been vulnerable to tariffs for years. Although companies like Microsoft, Sony, and Nintendo have moved some manufacturing outside China, many components are still sourced from there, meaning prices could rise for both consoles and accessories. If you're considering a console for yourself or as a gift, buying sooner rather than later might save you money.
   
   

3. Laptops and Tablets: Entry-level laptops and budget tablets are likely to experience price hikes due to tariffs. These devices often compete based on price, leaving manufacturers with little room to absorb added costs. If you need a new laptop or tablet for work, school, or personal use, purchasing before tariffs hit may be the most cost-effective option. Early August could present one of the last opportunities to buy at pre-tariff prices.

How Over Consumer Spending & Increased Costs Are Driving BNPL Usage and Cash Flow Issues

As the cost of essential goods continues to rise, many consumers, struggling to manage their finances, are turning to credit cards and loans. According to Equifax data, despite higher prices and borrowing costs, consumer spending remains steady, with credit card delinquency rates holding relatively flat. Increased borrowing has become a necessary response to rising costs, especially in categories like electronics and imported goods, where tariffs have made prices even higher. (Source)

Even though inflation pushes prices up, consumer demand remains largely unaffected. Consumers often seek alternatives to their desired products or services at more reasonable prices. However, even when these alternatives are available, consumers may still choose to borrow instead of paying cash, with the expectation of paying off the debt in the coming months. As the debt accrues interest, they end up borrowing from other sources to pay off the existing debt, creating a cycle of increased borrowing.

The rising popularity of Buy Now, Pay Later (BNPL) services

BNPL services have gained significant traction, especially among younger consumers looking for alternatives to traditional credit cards. Currently, over half (52%) of Americans use BNPL, with Gen Z and Millennials leading the market. As consumer goods costs rise, BNPL’s flexibility has made it more appealing. This trend reflects a shift from credit cards used for rewards and convenience to financing options that allow for smaller, more manageable payments. (Source)

While BNPL offers short-term relief, studies show that nearly 70% of users tend to spend more, feeling comfortable making large purchases without paying the full amount upfront. However, this can lead to increased spending and financial strain if not managed carefully. While some argue that BNPL encourages impulse purchases and debt accumulation, others suggest it can be used responsibly. This shift in spending habits raises concerns about long-term financial sustainability, are consumers using BNPL for smart budgeting, or overspending without considering future liabilities?

Delayed Payments and Delinquency

As financial pressures mount, individuals may struggle to meet payment obligations on time, especially as most of their income or earnings remain stagnant. As a result, delayed payments become common, as people prioritize urgent bills, such as medical emergencies, over other expenses, like BNPL payments, which leads to an increase in delinquency rates. With more individuals relying on credit to cover both everyday needs and wants, maintaining timely payments becomes increasingly difficult, pushing many into arrears, defaults, and delinquency.

Adverse Effects on Debt Recovery

For collections teams in debt management and payment recovery services, rising consumer debt and financial distress create a more challenging environment to recover payments. This financial strain can severely impact credit companies and BNPL services, restricting their ability to extend services to new customers due to affected cash flow. Furthermore, tariff-driven inflation has reduced consumers' purchasing power, making it harder for individuals to repay their debts. This situation calls for enhanced risk analytics and, in some cases, debt restructuring efforts, supported by AI-powered tools and services, to mitigate the effects of increased delinquency and improve recovery rates.

Conclusion 

The hidden costs of tariffs on electronics prices extend beyond individual purchase decisions, affecting consumer debt levels and posing challenges for debt recovery. Understanding these dynamics and leveraging advanced tools like AI in debt management will be crucial for both consumers navigating financial difficulties and the industry striving for successful debt recovery in a world of evolving trade dynamics and inflationary pressures.

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