Yet American consumers and American firms are paying dearly. Tariffs recently imposed by the Trump administration have already increased costs in several sectors. After these tariffs went into effect, imported goods saw an average price increase of about 5%, relative to projected prices without these tariffs. At the same time, goods produced in the U.S. increased by about 3%. As this trend continues, increasing the financial burden on consumers and businesses as well, we are learning that relief could be years away.
President Donald Trump has repeatedly claimed, both publicly and on Twitter, that foreign countries and overseas businesses are paying for these tariffs. According to a group of prominent economists and business leaders, that burden is being shifted onto American consumers. As more tariffs go into effect, U.S. firms and consumers will continue to feel higher untenable financial impacts. This unprecedented circumstance will require a closer look at the economic terrain.
In recent discussions, President Trump demanded that Goldman Sachs fire its chief economist after he presented a differing assessment regarding the economic implications of tariffs. This episode illustrates how combative the debate has become over tariffs and their economic impacts.
Economic Insights from Experts
Economists from Harvard Business School, including Alberto Cavallo, have conducted research indicating that imported goods are indeed costing consumers 5% more than anticipated due to tariffs. Cavallo stressed that this trend will continue to unfold at a gradual and constant pace.
“I think it could take over a year for us to see some of the effects of these tariffs,” – Alberto Cavallo
What Cavallo’s team discovered was that the immediate financial pinch often fails to register with consumers. In the long-run, they are bound to bear a large share of these costs.
In a similar analysis in July, Goldman Sachs economists estimated that U.S. consumers have already taken on 22% of tariff costs through June. They anticipate this share to jump to 67% by October. This disturbing prediction points to the dangers of dramatically increasing costs on American families.
In that effort, the Federal Reserve Bank of Atlanta has been at the forefront of this analysis. They discovered widespread plans among firms to hike prices this year. Their modeling demonstrates comparable long-term price growth expectations from both firms with foreign exposure and without foreign exposure. This indicates that the negative impact is pervasive across sectors.
Corporate Responses to Tariff Pressures
Now, corporate leaders are speaking out about the growing costs due to tariffs. As Doug McMillon, CEO of Walmart, recently testified, his company has experienced rising costs week-in and week-out from tariffs. That sentiment rings true throughout the economy. Businesses are still navigating how much of these added expenses they can eat and how much they need to distribute at the register.
“It’s now a question of, is it the manufacturer, is it the retailers, or is it the small business that’s bringing it in? They now have to figure out, ‘How much of this can I take on, and how much of this will I pass on?’” – Unattributed
The biggest challenge for major retailers, restaurants, and companies. Just as any business does, they need to manage the line of increasing prices, with the expectation of keeping their established customers retained. Too many industry leaders think giving consumers the bulk of these costs is a fait accompli.
“It’s very likely they will pass the bulk of it on,” – Unattributed
The landscape is all too dynamic as companies still test the waters on how best to price their services in light of these macro economic forces.
Long-Term Implications for Consumers
The impact of tariffs goes way beyond just raising costs. As noted by the Federal Reserve Bank of Atlanta, … . They further underscored that inflationary pressures might go further than only those affected by import tariffs. Yet researchers were anguished about the prospect that today’s environment would repeat the inflationary pressures we saw in the pandemic.
“The chief concern regarding the impact of tariffs is whether we will experience the same phenomenon that we witnessed during the pandemic. That is, will price pressures spread beyond only the prices that are directly affected by increased import duties?” – Atlanta Fed researchers
U.S. import prices from China recently registered their first monthly decline. Excluding China, prices for goods imported from the rest of the world have actually fallen. Import prices will be uneventful in the near term. For those businesses currently subject to tariffs, they’re bracing for more price increases.
Samuel Tombs and Oliver Allen, economists at Pantheon, pointed out something remarkable. They noted that import prices continue to show surprising stickiness despite a plunge in imports. The specter of future inflation weighs heavily on firms and households as well.
Alberto Cavallo concluded with an important observation about consumer awareness:
“But a year from now, maybe two years from now, we’ll notice that consumers ended up paying a significant amount of the tariffs even if they didn’t notice the increases right away.” – Alberto Cavallo