A MARTÍNEZ, HOST:
President Trump's tariffs are probably taking a bite out of Egg McMuffin sales, according to McDonald's executives. And that's not just because of the Canadian bacon.
STEVE INSKEEP, HOST:
McDonald's says lower-income customers are skipping the drive-through, in some cases, and worries over tariffs may be partly to blame. The news comes as the president imposed another round of unilateral tax increases on imports, starting today.
MARTÍNEZ: NPR's Scott Horsley joins us now with a less-than-happy economic meal. So, Scott, tell us where tariffs stand right now.
SCOTT HORSLEY, BYLINE: Higher tariffs are kicking in today on goods from a lot of big trading partners. For the last four months, the U.S. has been charging a 10% tax on most of what we import. As of today, that's going to 15% on goods from Europe, Japan, South Korea. Even higher tax rates are taking effect on goods from countries like the Philippines, Switzerland and South Africa. The tax on many Canadian goods jumped to 35% last week, and the president just imposed a 50% tax on goods from Brazil, which is the world's No. 1 coffee producer. So you're likely going to have to pay more for your morning java.
MARTÍNEZ: Yeah, and McDonald's sells a lot of coffee. And their breakfast business is already taking a big hit, so tell us about that.
HORSLEY: McDonald's has actually fared better than a lot of fast food competitors. Sales at the chain's existing restaurants in the U.S. are up about 4% from a year ago. But executives said yesterday they are concerned. A lot of their customers are very price-sensitive, especially when it comes to breakfast. And CEO Chris Kempczinski says industry-wide, lower-income customers are just not spending as freely as they were this time last year.
CHRIS KEMPCZINSKI: There is a lot of anxiety and unease with that low-income consumer - probably tariffs and the impact that that might have, questions around employment situation. But it's clear from the data that sentiment is down. And the result of that is they're skipping breakfast or they're trading down, either within our menu or they're trading down to eating at home.
HORSLEY: A 50% tax on imported coffee is not going to help, although, you know, homebrewed java is likely to see a price hike, as well.
MARTÍNEZ: Sure. Now, beyond the drive-through, I mean, how are the president's tariffs affecting the broader economy?
HORSLEY: Evidence continues to pile up showing these import taxes are raising prices and slowing growth. U.S. factories have been in a slump for months now, and now the tariffs are starting to weigh on the much larger services side of the economy. Every month, the Institute for Supply Management puts out an index of service sector activity. And the July figure, which came out a couple days ago, showed services moving just above stall speed last month. Steve Miller, who oversees that index, says farmers, hotels, construction companies - they're all looking at higher prices and slower growth.
STEVE MILLER: Tariff tensions are not just increasing uncertainty, but they're impacting global trade. There's no question that tariffs are raising prices paid - a potential driver of future inflation.
HORSLEY: Now, forecasters don't think we're looking at anything like the 9% inflation rate we had a few years ago, but tariffs could push inflation back above 3%. And that makes it harder for the Federal Reserve to cut interest rates, even though that's what Trump says he wants. Still, markets are betting the Fed will cut rates at its next meeting in September, partly to prop up the sagging job market and perk up sluggish growth.
MARTÍNEZ: But President Trump boasts all the time that tariffs are raising a lot of money for the government. So is he right?
HORSLEY: When you impose a big tax like this, it does bring in a lot of money - about $30 billion a month right now. I'll caution, however, federal courts have raised serious questions about whether most of these tariffs are even legal. If it turns out, once the appeals are exhausted, they're not legal, then the government's going to have to give a lot of that money back.
MARTÍNEZ: That's NPR's Scott Horsley. Scott, thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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