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As more tariffs loom, experts warn consumers to brace for impact

How Mexico tariffs could affect your wallet
  • Experts say U.S. tariffs on Mexican goods, coupled with steeper levies on Chinese imports, will raise the price on everything from fruit and vegetables to cars and some electronic gadgets in the U.S.
  • The heightened trade tensions comes as signals point to a slowing U.S. economy.
  • Analysts also fear the conflict with Mexico could hinder passage of the USMCA, the trade pact the Trump Administration endorses as a replacement NAFTA.

As President Donald Trump escalates his trade war by threatening new tariffs on Mexico and expanding levies on Chinese imports, experts warn that the chances of a sharp slowdown or even a recession within the next year are climbing. 

While most Americans are unlikely to have felt much impact from the conflict, the unusually sweeping nature of Mr. Trump's latest threats mean that could change. Here's how U.S. consumers could may soon feel the sting from the feud with two of the country's leading trade partners.

Higher prices for burritos, TVs and more 

The Mexican and U.S. economies are so interlinked after 25 years of the North American Free Trade Agreement that a proposed 5% tariff on all Mexican imports would affect a range of products, said Michelle Casario, an assistant professor of economics at Villanova University.

"Consumers could expect to see higher prices from avocados to tomatoes, beer to tequila, phones to computers to televisions, and even higher prices at the gas pump," Casario told CBS MoneyWatch.

Chipotle warned Monday that the threatened tariffs on Mexico could boost its costs by $15 million, according to Bloomberg. If the tariffs become permanent, the chain would use price increases of about 5 cents a burrito to help cover the cost. 

Tariff hike on Chinese goods would mean 25% price increase for Americans

Mexico is the largest agricultural supplier to the U.S., so Americans would also likely see higher prices for produce such as asparagus, berries, lemons and limes. 

Car buyers could see the most drastic price hikes. About 17 percent of vehicles sold by U.S. automakers are built in Mexico, according to Jack McIntyre, portfolio manager at Brandywine Global. That translates to an average increase of $1,500 or more for a new car, McIntyre said.

Watch your 401K

In May, the S&P 500 declined by roughly 7% after Mr. Trump announced steeper tariffs on China -- the biggest decline for the month in 50 years, according to Gavekal Research. That's denting people's 401K and IRA retirement plans. The sectors taking the biggest hit: energy, down 12% in May; tech (down 9%): consumer discretionary (a nearly 8% drop); financials (down more than 7%); and consumer staples (a 4% decline), according to Yardeni Research. 

What's more, indexes that include a broader array of companies, like small businesses, also sank, for a fourth straight week for the first time since August 2011, Yardeni said in a note.

The retreat in stock prices won't crush family budgets, but a continued slide can dampen consumer confidence and spending, which in turn can lead to a pullback in hiring. As of April, about 55% of Americans had some investment in the stock market, a recent Gallup Poll found

"Direct risk" to restaurants 

The tariffs on Mexican imports, if imposed, represent a "direct risk" to restaurants, Goldman Sachs economists wrote in a note. Combined with the added costs from already imposed and proposed new tariffs on Chinese goods, U.S. consumers may curb their spending 

Combine them with actual and threatened tariff increases on Chinese goods, and consumers may slow their spending on dining out and consumer electronics, according to the investment bank.

Meanwhile, some of the country's biggest retailers, including Walmart, have already warned that stepped up tariffs on China are boosting the cost of footwear, clothing and other products.

The U.S. Trade Representative estimates it will receive some  60,000 requests to exclude a particular product from the new tariffs on Chinese imports as it considers the impact this month.

Signs of a slowdown

Heightened concerns about trade also come as the U.S. economy appears to be weakening. Morgan Stanley analysts predict a possible recession in as little as nine months. Economists now expect the Federal Reserve to cut interest rates in 2020, if not before. That's a stark reversal from forecasts last year. The Fed has raised rates four times since Mr. Trump named Jerome Powell chairman to keep a decade-long economic expansion from overheating and crashing the economy.

China moves to restrict U.S. access to rare earth minerals as trade war intensifies

"The market-implied probability of a rate cut in September is 85%," Deutsche Bank economist Torsten Slok said in an email to investors Monday. 

Typically, the Fed cuts rates -- the amount banks charge to lend to each other - in order to stimulate economic growth. But a rate cut also typically curbs gains in retirement accounts for older Americans. That's because those accounts typically contain more treasuries and bonds, considered safer than stocks for generating income.

A survey of corporate economists released in April, before trade tensions escalated with China and Mexico, predicted the pace of economic growth will decline