Table of Content:

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

• Why Do Governments Impose Tariffs?

• How Tariffs Could Lead to Inflation

• Understanding President Trump’s Proposed Tariffs

• Will Tariffs Drive Inflation Higher?

• How Tariffs Might Lead to Higher Electronics Prices

• How Overspending and Higher Prices Drive BNPL Reliance

• The Rising Popularity of Buy Now, Pay Later (BNPL) Services

• Key Takeaway

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

The global tariff debate has intensified as the U.S. prepares new measures on August 1, hitting consumer electronics hardest. President Trump’s tariffs on Chinese imports, smartphones, laptops, and gaming consoles, aim to protect U.S. businesses but have instead driven up prices and caused job losses in import-dependent industries. Tariffs on steel, aluminum, and Chinese goods have fueled inflation, uncertainty, and retaliatory measures, shaking the stock market. As The Economic Times notes, these tariffs act as a hidden tax on working-class families.

Not all products will see immediate price hikes, but electronics are set for steep increases in the coming months. A temporary 90-day pause on tariff hikes ends in August 2025, and countries without agreements already face higher pre-April tariff levels, likely pushing prices even higher. Retailers are bracing for impact before back-to-school and holiday shopping, prompting consumers to change their buying habits.

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, aluminum), 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 President 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.

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

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: High-end models like the iPhone and Galaxy, as well as budget Android phones, are among the most globally integrated products. With tariffs impacting all tiers, smartphone prices are expected to rise, making now a smart time to upgrade before rising prices take hold. Retailers may offer short-term promotions, but hikes will likely phase in as new models launch.

2. Game Consoles: Xbox, PlayStation, and Nintendo Switch consoles remain vulnerable to tariffs despite some manufacturing shifting outside China. With many components still sourced there, both consoles and accessories could see hidden costs of tariffs in the U.S. Buying sooner may help consumers avoid increases, especially ahead of the holidays.

3. Laptops and Tablets: Entry-level laptops and budget tablets are particularly exposed. Competing largely on price leaves manufacturers little room to absorb added costs, so tariffs on electronics could sharply push prices higher. For work, school, or personal use, purchasing before August may be the last chance at pre-tariff pricing.

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 struggle to manage finances, and 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 as inflation drives prices higher, consumer demand often stays steady. Shoppers may seek cheaper alternatives, but many still choose to borrow rather than pay cash, expecting to repay later. As interest accrues, they frequently borrow from other sources to cover existing debt, creating a cycle of rising borrowing and mounting consumer debt.

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.

While BNPL offers short-term relief, nearly 70% of users spend more, making larger purchases without upfront payment. This can increase financial strain if unmanaged. Critics say BNPL fuels impulse buying and debt, while supporters see it as a budgeting tool. This raises concerns about long-term sustainability, are consumers using it wisely or overspending without considering future liabilities?

Delayed Payments and Delinquency

As financial pressures grow and incomes stay stagnant, many people struggle to make payment on time. Urgent bills, like medical expenses, often take priority over BNPL or other payments, driving up delinquency rates. With more reliance on credit for everyday needs, timely payments become harder, pushing individuals into arrears, defaults, and higher delinquency.

Adverse Effects on Debt Recovery

For collections teams, rising consumer debt and financial strain make payment recovery harder. This impacts credit companies and BNPL services, limiting cash flow and their ability to serve new customers. Tariff-driven inflation has also cut consumers’ purchasing power, making repayment tougher. Enhanced risk analytics, debt restructuring, and AI-powered tools are now essential to curb delinquency and boost recovery rates.

Key Takeaway  

• Tariffs are raising prices on smartphones, laptops, and gaming consoles.

• More people are using credit cards and BNPL to afford electronics.

• Delayed payments and debt are growing as costs rise.

• Businesses need smarter debt recovery tools to keep up.

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