Consumers are getting more cautious.
That caution comes just as Donald J. Trump starts his second presidency. And while he seems to be hitting the ground running signing at least 37 executive orders since Inauguration Day on Jan. 20, from withdrawing the US. from the Paris climate accord to an America First Policy and securing U.S. borders, what still needs to be clarified is his plan for tariffs.
The National Retail Federation, a retail trade organization, along with Trade Partnership Worldwide LLC, conducted a study that concluded American consumer spending power would be reduced by $46 billion to $78 billion each year that tariffs are in place for six product categories that include apparel and footwear. Trump made the talk on tariffs a substantial component of his campaign agenda. With even the possibility of a broad-based levy on all imported goods to incentivize domestic manufacturing, the impact on consumers could go beyond just apparel and footwear.
At the top of their list of concerns are jobs and inflation. In the latest Conference Board’s Consumer Confidence Index, confidence retreated in January, falling by 5.4 points to 104.1. Both components of the Index reflected declines. The Present Situation Index experienced the largest decline, dropping 9.7 points to 134.3. The Expectations component, which measures the short-term outlook six months out, fell 2.6 points to 83.9.
“Notably, views of current labor market conditions fell for the first time since September, while assessments of business conditions weakened for the second month in a row,” The Conference Board’s chief economist Dana M. Peterson said. “Meanwhile, consumers were also less optimistic about future business conditions and, to a lesser extent, income. The return of pessimism about future employment prospects seen in December was confirmed in January.”
In the latest survey, 18.4 percent of consumers said current business conditions were “good,” down from 21 percent in December. And their assessment of the labor market plunged, with 33 percent stating that jobs were “plentiful,” down from 37.1 percent last month. Looking six months out, 20.9 percent of respondents expect business conditions to improve, down from 22.7 percent in December. Their assessment of the labor market outlook also reflected pessimism, with 19.4 percent expecting more availability of jobs, down from 19.8 percent last month.
And in other Conference Board data points, the average 12-month inflation expectations rose to 5.3 percent from 5.1 percent in January. In addition, references to inflation and prices by survey respondents continued to dominate write-in responses. More than half of consumers, at 51.4 percent, now expect higher interest rates over the next 12 months.
Economists at Wells Fargo noted that January’s consumer confidence report fell to a four-month low. And while the labor front was an issue, of more “urgent concern” to Fed policymakers will be that the average inflation expectation for 2025 came in at 5.3 percent in January, reflecting the second-straight monthly increase.
Economist Lauren Saidel-Baker at ITR Economics said that while inflation was ticking down at the end of 2024, she expects the rate to climb back up “by the tail end of 2025. So anything that the Trump administration does with tariffs is going to add on top of where we already saw inflation coming back.” She noted that many of his policies “tend toward the inflationary side.”
The Federal Reserve kept interest rates steady on Wednesday signaling inflation concerns are still are their mind.
The ITR economist doesn’t see that as necessarily a bad thing, and she’s definitely not foreseeing runaway inflation. “A lot of the fundamental factors [causing inflation to rise] has to do with our expectation for the macro cycle to be picking up again. More macro-economic growth does tend to stimulate activity, and that tends to be a bit inflationary,” Saidel-Baker said. She described the increase as a “modest uptick in inflation.”
According to Saidel-Baker, inflation is neither good nor bad. “It just creates different winners and losers [depending on] what side of the table you’re sitting on,” she said, adding that even with tariffs, it’s “neutral” overall for the economy because its good for some people, but not so great for others. Data from the round of tariffs in 2018 from Trump’s first administration shows higher inflation for textiles goods because that category tends to be imported rather than domestically produced, she said. But the economist also noted that wasn’t all that happened in 2018.
“What’s really interesting to me is what we saw in 2018, which was that it wasn’t just foreign products that saw higher prices. A lot of domestic producers took that competitive landscape, the higher prices with tariff costs of those foreign competitor goods, and raised their own domestic prices,” she said. That resulted in broad-based price increases, whether it was domestic producers taking margin or just trying to bump up their own pricing.
Piyush Patel, Algolia’s chief strategic business development officer, expects shoppers to continue to spend in an upward trend in 2025, although at a slower growth rate “due to consumers still reeling from inflation impact, high interest rates and increasing household debt.” Mindful consumption is likely the theme for the year, he said.
Scott Bessent, President Donald J. Trump’s new head of the Treasury Department, is in favor of a new universal tariff plan where levies rise gradually each month at a rate of 2.5 percent. But Trump has said he favors larger increases, threatening countries such as Canada and Mexico with a new across-the board tariffs on imports that could begin on Sunday. Trump also wants to implement an additional 10 tariff on Chinese imports, although he had threatened a tariff as high as 60 percent when he was on the campaign trail. Another country on Trump’s watch list is India. India is a high-textiles producer among the Asian nations, although it still has ways to go before it catches up with China. India is also growing scale in apparel production, although it still isn’t yet as dominant as either China or Bangladesh.
TD Cowen’s Washington strategist Chris Krueger believes the first key date for trade policy is April 1, when a report from Commerce, Treasury and the U.S. Trade Representative is due on multiple topics ranging from goods deficit, exports, discriminatory taxes, China Phase One Deal and the U.S.-Mexico-Canada Agreement (USMCA) to Buy America.
“Increased tariffs remain a question of when, not if,” Krueger concluded. He expects the tariffs initially flagged for Mexico and Canada on Feb. 1 will be delayed because of border control issues, Trump’s current priority. And the strategist believes the tariff threats for America’s North American trading partners are “more of an accelerant for USMCA talks.”
Trump has shown he’s also capable of using tariff threats as a negotiation tactic. That was evidenced last weekend when Trump threatened an “emergency” 25 percent tariffs on Columbian goods coming into the U.S. after Gustavo Petro, the country’s president, refused to allow U.S. military planes carrying Latin American migrants from landing. Trump also said Columbian government officials would face travel bans and visa revocations, and that banking and financial sanctions also would be imposed. While Petro threatened retaliatory tariffs, the impasse was later diffused after Petro acceded to Trump’s demands.
The implementation of tariffs also raises other concerns.
In addition to potential pass-along costs to consumers, the tariff impact could result in the potential loss of jobs.
“Simply put, tariffs on footwear are a hidden tax on hardworking families—Americans see it that way and understand they ultimately bear the cost,” Matt Priest, president and CEO of the Footwear Distributors & Retailers of America, said. “Higher tariffs will raise consumer prices, and lawmakers should be aware that these decisions will affect not just families but also have the potential to influence the outcome of the 2026 midterm elections.”
In a press briefing earlier this month, Priest described the next four years as a “roller coaster ride,” with perhaps some opportunities for collaboration, including a hope for the Trump administration to think about tariffs in a “surgical way” so it’s “not long lasting if they go big.”
“Our hope is that the President, his team, thinks very clearly about the inflationary aspects of tariffs on things like footwear that are not strategic industries, do not have robust domestic manufacturing— meaning they do not have robust union membership here in the States—and are absolutely inflationary, and so that’s our biggest concern,” Priest said.
Whether Trump gets the 60 percent tariff hike on products from China or 10 percent to 20 percent, Priest said what is known is that Trump wants to create some negotiating leverage with key trading partners.
For Kim Glas, president and CEO of the National Council of Textile Organizations (NCTO), a key concern is the survival of the U.S. textiles industry.
“We need more middle class jobs. We’ve seen a wage erosion in this country over decades, which has forced a lot of American consumers to buy the cheapest products from offshore, and we need a recalibration of some of that,” Glas said.
Glass hopes Trump refrains from placing penalty tariffs on Western Hemisphere Free Trade Agreement countries. “Seventy percent of what the U.S. textile industry makes is exported to USMCA or CAFTA-DR (Central America-Dominican Republic Free Trade Agreement). Under the rules of those agreements, it incentivizes the use of U.S. or regional yarns and fabrics, and to make sure that production chain is really benefitting the countries who are party to the agreement, and not China, to get the duty free access,” she said. Glas added that the U.S. textile industry doesn’t want to see those preferences eroded, because penalty tariffs on countries using U.S. inputs could harm the sector, noting that in the past 18 months, there have already been 25 plant closures.
At the top of her agenda is the protection of apparel production jobs. Glas said there are 500,000 workers in the U.S., from the fiber stage all the way to the finished production chain. They support 1.5 million workers in the Western Hemisphere free trade and trade preference partner countries. Seventy percent of what is made in the America is exported to them, which then comes back to the U.S. as finished garments, she said. Those free trade agreements developed co-production chains to compete against China and the jobs going offshore following what Glas described as “unfair trade practices over the last 20 years” for the upstream textile industry after China’s accession to the World Trade Organization.
As for the apparel production hubs in the U.S., Glas said the survivors have thrived making “incredible product here,” and said that producing closer to home allows for quick inventory turns, as well as smaller production runs so brands and retailers don’t have to worry about the over-purchasing of goods and subsequent slashing of prices when they don’t sell. She said there are 20,000 textile and apparel firms across the U.S.
The NCTO president added that while there is a wave of brands and retailers sourcing closer to home, there’s also economic harm facing everyone due to the growth of de minimis. “There are 4 million de minimis packages—duty free packages—coming in a day from China and everywhere else in the world, and half of it is estimated to be textile and apparel goods,” she said, adding that Trump needs to close the de minimis loophole. According to Glas, the failure to collect duties for goods normally subject to penalty tariffs under different U.S. trade remedy statutes has exacerbated the flow of goods that violate U.S. trade laws, which in turn cost American jobs and damage the U.S. manufacturing sector.
