Face the Facts: How increasing tariffs can impact what you pay at the store

The day after Donald Trump was declared the winner in the race for the White House, the stock market soared 1,500 points on Wednesday.

But are we heading into a trade war with China when President-elect Trump takes office, and what will that mean for your wallet if we do?

NBC Connecticut's Mike Hydeck spoke with Heath Grossman, a partner at the financial planning firm Johnson Brunetti.

Mike Hydeck: First up, on the campaign trail, President Trump says he wants to tax imports from China 60% and all other countries, including like Canada and Mexico, 20%. Some economists say that that's going to drive up inflation. What's your take?

Heath Grossman: Yeah, so what we're talking about is tariffs. Tariff is ultimately an additional tax on imported goods. And a lot of people will say that that tax is paid by the exporting company or country, but really, that's not true. I mean, that is paid by the importing country or company, and it ultimately is passed on to the consumer.

Mike Hydeck: So imagine an iPhone costing $1,000. 60% more?

Heath Grossman: Probably going to be more. Yeah, absolutely.

Mike Hydeck: So that's going to hit us a lot in the pocketbook. So does that lead to inflation in your mind? Or it still remains to be seen?

Heath Grossman: It can, yeah. I mean, most economists do agree that it is inflationary, and it is near consensus among economists that it is self defeating and it leads to higher prices.

Mike Hydeck: So inflation is something we've been grappling with for years now. It's now in the 2% range. The feds' target is you know, 2.0. All of a sudden, we could be headed back up, depending on how the economy responds to tariffs, right?

Heath Grossman: Yeah, there could be. I mean, tariffs can be used judiciously if you want to protect an industry. I mean, if you sell widgets and another country comes in and undercuts you on price, and basically you can't sell those widgets anymore, you've got to go out of business, and then they just jack up the price on anybody, everybody, because they control the market. I mean, a tariff could be used, from a protectionary standpoint, to protect that industry, but if you really use it broad-based, across the board on everything, it's going to lead to higher prices. We're talking on apparel, footwear, furniture, you know, even just, you know, not just things that we get from other countries, but when we have companies that use components that they get from other countries, it can be inflationary.

Mike Hydeck: So if part of an auto part is built in China and then assembled in Mexico and then moved here, it's gonna be added to that?

Heath Grossman: Exactly. Even if that automobile is mostly built in the United States, or the company that builds that is from the United States, it could still have an inflationary aspect to it.

Mike Hydeck: Now, does that in turn, mean that China would possibly pull back on buying things from U.S.? It can be, that's what a trade war is, right? It's a tit for tat. How does that affect things?

Heath Grossman: Sure, yeah. If I punch you in the face, you can punch me back, right? You know. So they can retaliate, and, you know, they could limit American activity. They can limit American resources. They could do the same thing back to us. So we don't know what's going to happen.

Mike Hydeck: So it's going to be really interesting. So, what about investment? So if this continues to, you know, because big companies invest in some of these companies that trade back and forth with China, how would that affect either the stock market, how would it affect 401ks, people's IRAs, that kind of thing?

Heath Grossman: I mean, the U.S. economy is built on these publicly traded companies continuing to do business and continuing to earn profits. If they earn less profits because people stop buying their products, that's going to have an effect on the overall economy. If there's less and less and less profits for these companies, they might start laying people off, right? So that has a cascading effect, ultimately, on the economy.

Mike Hydeck: What does that mean for our economy, at large, across the country? We have to buy these things. We have to sell these things. That's involved in our investments. Are there ways that this can be modified in the economy? Meaning, if there are some tariffs, we can say, "Look, that's going a little too far." I mean, do we do we talk to our legislators? Do we e-mail the White House? Like, how does the economy respond if we, Americans at large, don't like the path?

Heath Grossman: Yeah, I mean, ultimately we as consumers have purchasing power, right? I mean, everybody's been very concerned over the last few years about inflation, and nobody loves going to the grocery store and seeing what the prices are. But a lot of those companies really, let's face it, a lot of those companies that are selling those products, they're selling cereal off the shelf, you know, they have good profits, right? They are profitable as companies, right? So, you know, they can probably lower the prices and still be profitable as companies. Until we as consumers speak with our purchasing power and we stop buying those products, they won't lower the prices.

Mike Hydeck: So Johnson Brunetti is financial planning. I have disposable income, and I want to invest in a stock to try to predict where all of this is going. How do you do that? Is there anything certain that you could jump into?

Heath Grossman: Well, it's hard. I mean, a lot of the folks that we work with are people that are retired now, or people that are leading up to retirement. So they want to make sure that they have a plan, and they want to make sure that they have safety built into that plan. When we talk about specifically just the stock market and risk-based types of tools and strategies, it's hard to say. I mean, there's nothing out there that you could say is definitely going to go up or down tomorrow. I think you want to make sure that your risk is spread around.

Mike Hydeck: So when you hear in the news, President Trump is going to tighten the screws on Iran, which means oil could go up - don't necessarily jump headlong into oil stocks, because you can't really count on that just yet.

Heath Grossman: Exactly. You don't want to be in any one thing or area versus another one. You want to be kind of in all of them.