Last month, the United States Department of the Treasury collected $8.75bn in customs duties, up from $6.64bn in March of last year.
March saw the imposition of several new tariffs, including a blanket 25% on imported steel, aluminum, and – beginning March 26 – automobiles. Additional duties were levied specifically on imports from some of the country’s largest trading partners: 20% on China beginning March 3, and 25% each on Canada and Mexico.
It’s worth noting that all tariffs on Canadian and Mexican imports have been postponed for goods compliant with the United States-Mexico-Canada Agreement (USMCA). While the exact requirements for a good to be compliant vary by product type, it generally means that most of a product’s value must come from inputs sourced in North America and that the labor involved is paid a sufficiently high wage. For example, car parts under the agreement require 75% of their value to come from inputs from USMCA countries, and that workers are paid wages equivalent to $16 per hour.
In spite of this, key inflation indicators moved downward. The consumer price index (CPI) increased just 2.4% year-over-year when compared to last March, down from 2.8% in February. The producer price index (PPI), which tracks inflation for domestic producers, decreased from 3.2% in February to 2.7% in March.
Despite the generally optimistic direction of these indices for the broader economy, movement in particular line items as well as continuing uncertainty over the Trump administration’s tariff policy mean that the inflation situation remains a key concern for consumers and producers alike. We’ve often stated that insurance will only be indirectly impacted by tariffs, but there are a number of CPI and PPI items that could raise loss costs for property and casualty insurers alike in the long run.
We go into further detail below about medical, wage and construction price inflation, which will eventually be felt by insurers in the form of increased loss severity. While social inflation remains the chief concern for liability lines, jury awards could become even greater if the cost of healthcare and wages continues to rise.
Additionally, we’ve included an updated map of the global tariff situation as of this piece’s publication.
Certain liability loss cost factors have outpaced the CPI
Liability insurance claims are not typically impacted by everything that the average consumer cares about, like the price of eggs (which recently topped $6/dozen) or of a gallon of gasoline (which fell nearly 10% year-over-year, according to the March CPI report).
However, the cost of medical care can have an impact on the scale of liability loss severity, particularly when amplified by social inflation. Three major CPI items related to the cost of healthcare are now higher than the overall rate of inflation for other consumer goods.
The medical care services item has stayed steady at 3%, while hospital services has increased from 3.6% to 3.7% and physician’s services has increased from 2.6% to 2.9%. These figures seem like relatively slight changes, but all three have consistently trended upwards from the start of the year even as the total consumer price index has declined.
Healthcare costs could continue to rise with the imposition of high tariffs on China in April and other potential changes to tariff policy over the next few months, particularly as President Trump has promised to announce a “major tariff on pharmaceuticals” in the near future.
Even domestic pharmaceutical production won’t be completely immune, as many active pharmaceutical ingredients come from China. Of additional concern is the cost of medical devices, which are mostly imported from Mexico and thus may or may not face 25% tariffs depending on the USMCA-compliance of individual manufacturers.
The chart below shows how each of these indices has trended over time from January 2017.
Wage inflation has remained steady at 4.3% in March, the same as in February. As we discussed in last month’s piece on loss-cost inflation, market conditions for workers are largely unfavorable, which is likely to result in reduced wage inflation in the coming months.
Nonetheless wage inflation remains significantly higher than CPI following a reversal during the post-pandemic years. This can result in higher liability claims costs, particularly for claims that come from accidents or injuries which prevent the claimant from working for an extended period of time (and thus missing out on future wages).
The chart below shows how wage inflation has changed relative to the consumer price index from January 2017.
Property loss costs could rise with construction costs
The cost of construction materials skyrocketed between 2021 and 2022, as supply chains struggled to reconstitute themselves in the aftermath of the pandemic. From late 2022 onwards construction materials inflation plummeted and remained low or negative thereafter, with a brief spike in early 2024. This month’s PPI report showed construction materials inflation on the rise again, but it’s unclear if this is a systemic issue or a repeat of the brief price rise evident around this time last year.
Construction materials are particularly exposed to tariffs, with Canadian softwood lumber and Mexican limestone (used in cement) among the most vulnerable construction material imports.
These goods may or may not be exempted from the 25% tariffs levied on those countries at the beginning of March depending on whether they are compliant with USMCA. Additional blanket tariffs on steel and aluminum, as well as other imports (such as appliances, commonly sourced from China) could have knock-on effects to the price of construction.
The chart below compares the construction materials index with the overall producer price index from January 2017.
Where the tariff situation stands as of mid-April
While the situation is constantly changing, the map below shows the global tariff situation as of the time of writing this article. Note that the 10% tariffs now levied on most countries will be revisited by the Second Trump Administration in three months’ time and does not account for additional blanket tariffs on certain types of goods. Additional tariffs on semiconductors and pharmaceuticals are said to be coming “very soon”, but no details are available as of April 14.