Early signs suggest that US companies and consumers are feeling the impact of the new import tariffs in the country, contradicting President Donald Trump’s claims and posing challenges for the Federal Reserve in controlling inflation. Trump had anticipated that foreign nations would bear the brunt of his protectionist measures, assuming that exporters would absorb the costs to maintain a presence in the largest consumer market globally. However, various studies, surveys, and feedback from businesses indicate that American firms are primarily absorbing the expenses and passing some on to consumers, potentially leading to more price hikes.
Harvard University professor Alberto Cavallo noted that US companies are bearing most of the costs, with a gradual shift towards higher consumer prices and a noticeable upward pricing trend. Although the White House suggested a temporary adjustment period for Americans due to tariffs, they believe that foreign exporters will ultimately bear the costs. Meanwhile, researchers tracking the prices of over 359,000 goods in the US observed a 4% increase in imported goods’ prices since the initiation of tariffs by Trump, compared to a 2% rise in domestic products’ prices.
The escalation in costs for imports has been more significant for goods that the US cannot produce domestically, such as coffee, or those originating from heavily penalized countries like Turkey. Despite the material price hikes, they have generally been smaller than the tariff rates imposed, indicating that sellers are absorbing a portion of the expenses. Additionally, foreign exporters have been adjusting their prices in response to the dollar’s depreciation, passing on some of the impact to US buyers.
The adaptation to Trump’s tariffs is ongoing, with exporters, importers, and consumers navigating the complexities of who bears the duties amounting to around $30 billion monthly. While European car manufacturers have absorbed some price impacts, consumer companies like Procter & Gamble, EssilorLuxottica, and Swatch have resorted to price increases. Notably, a significant percentage of companies in Europe, the Middle East, and Africa have raised prices since the onset of trade tensions.
The implications of these developments point towards potential inflationary pressure in the US, with the Fed grappling with the uncertain effects of tariffs on consumer prices. While some policymakers downplay the inflationary impact of tariffs, projections suggest a temporary uptick in inflation rates. The global economic landscape is also feeling the repercussions, with export demand likely to decrease as US consumers face rising costs. The World Trade Organization has revised its global trade growth forecast downwards, citing delayed repercussions from US tariffs, with an anticipated slowdown in merchandise trade volume.
As the trade environment remains uncertain, experts predict a reduction in EU exports to the US, potentially impacting GDP growth in the region. The effects of US tariffs are expected to become more pronounced in the coming months, underscoring the far-reaching consequences of the ongoing trade tensions.