Price increases: A local resident shops for groceries at a supermarket in Bellflower, California. Researchers find that imported goods have become 4% more expensive since Trump started imposing tariffs in March, while the price of domestic products rose by 2%. — AP
NEW YORK: US companies and consumers are bearing the brunt of the country’s new import tariffs, early indications show, contradicting assertions by president Donald Trump and complicating the Federal Reserve’s (Fed) fight against inflation.
Trump famously predicted that foreign countries would pay the price of his protectionist policies, wagering that exporters would absorb that cost just to keep a foothold in the world’s largest market.
But academic studies, surveys and comments from businesses showed that through the first months of Trump’s new trade regime it is US companies that are footing the bill and passing on some of it to the consumer – with more price hikes likely.
“Most of the cost seems to be borne by US firms,” Harvard University professor Alberto Cavallo said in an interview to discuss his findings.
“We have seen a gradual pass-through to consumer prices and there’s a clear upward pressure.”
A White House spokesperson said “Americans may face a transition period from tariffs” but the cost would “ultimately be borne by foreign exporters”.
Companies were diversifying supply chains and bringing production to the United States, the spokesperson added.
Cavallo and researchers Paola Llamas and Franco Vasquez have been tracking the price of 359,148 goods, from carpets to coffee, at major online and brick-and-mortar retailers in the United States.
They found that imported goods have become 4% more expensive since Trump started imposing tariffs in early March, while the price of domestic products rose by 2%.
The biggest increases for imports were seen in goods that the United States cannot produce domestically, such as coffee, or that come from highly penalised countries, like Turkiye.
These price hikes, while material, have been generally far smaller than the tariff rate on the products in question, implying that sellers were absorbing some of the cost as well.
Yet, US import prices, which don’t include tariffs, showed foreign exporters have been raising their prices in dollars and passing on to their US buyers part of the greenback’s depreciation against their currencies.
“This suggests foreign producers are not absorbing much if any of the US tariffs, consistent with prior economic research,” researchers at Yale University’s Budget Lab think-tank said in a blog post.
National indices of export prices paint the same picture. The cost of goods exported by China, Germany, Mexico, Turkiye and India have all risen, with Japan the only exception.
Adapting to Trump’s tariffs, a still-incomplete set of levies that pushed import taxes from an average of around 2% to an estimated 17%, is underway.
It is seen taking months longer as exporters, importers and consumers jostle over who pays duties worth US$30bil per month.
“We shouldn’t expect this to be a one-time jump but rather firms are trying to find ways to soften the blow”, and stretch price increases, Cavallo added.
European carmakers have looked – so far – to absorb more of the price impact, but consumer firms including Tide detergent maker Procter & Gamble, Ray Ban maker EssilorLuxottica and Swiss watchmaker Swatch have hiked prices.
Around 72% of companies in Europe, the Middle East and Africa tracked by Reuters flagged price hikes since Trump’s trade salvoes started, a Reuters tracker showed.
Only 18 companies have warned on profit margins.
Separate analyses of eCommerce websites Shein and Amazon were already showing robust price increases for Chinese products sold in the United States, ranging from clothing to electronics.
China’s so-called “anti-involution” policy, under which producers are encouraged to scale back competition and even cut capacity in key sectors, could add fuel to the fire by curbing the supply of goods such as solar power equipment.
That has all set the scene for higher inflation in the United States.
The Fed cut its benchmark rate last month on concerns the job market was weakening but policymakers are split over whether or not tariff-driven inflation will likely fade. — Reuters
