Customers wait at a General Motors Co. dealership in Miami. Photographer: Eva Marie Uzcategui/Bloomberg.
Who’s paying for Donald Trump’s tariffs? So far, American businesses and consumers.
General Motors Co. was the latest U.S. business to disclose how the levies are raising costs, with the automaker saying today that the duties dented second-quarter profits by more than $1 billion as it chose to absorb most of the blow. That helps explain why car prices didn’t rise in last week’s inflation data, even as robust price increases for other commonly imported goods—like toys and appliances—showed tariff expenses starting to be passed on to consumers.
Meanwhile, import prices excluding fuel were up notably in June, suggesting that foreign companies aren’t shouldering the burden by offering U.S. firms lower prices—challenging the president’s claims that other countries would pay the tariffs. Trump reiterated that characterization today after a meeting with his counterpart in the Philippines, saying in a post on social media that country “will pay a 19 percent tariff.”
Customs duties are giving a significant boost to U.S. federal tax revenues. Unfortunately for U.S. businesses and consumers, the data shows that those coffers are being filled domestically.
“The top-down macro evidence seems clear: Americans are mostly paying for the tariffs,” George Saravelos, global head of FX research at Deutsche Bank AG, said in a note today. “There is likely more pressure on U.S. consumer prices in the pipeline.”
Many economists agree, especially as relatively tame readings in the consumer price index (CPI) this year have underscored firms’ hesitation to pass on tariffs to customers. That’s also been evident in the producer price index (PPI), where the rate of increase in a measure of margins for wholesalers and retailers has slowed sharply in recent months. “With little relief on import prices, domestic firms are stomaching the cost of higher tariffs and starting to pass it on to consumers,” Wells Fargo & Co. economists Sarah House and Nicole Cervi said in a note last week. “The recent rise in import prices points to foreign suppliers generally resisting price cuts.”
Granted, there are some signs that foreign suppliers are absorbing part of the impact in order to keep goods flowing to the United States. Export prices in Japan have contracted for three straight months, and in June, the country’s carmakers cut prices to the U.S. market by a record in data going back to 2016.
But for many foreign companies, the slide in the U.S. dollar has provided incentive to raise invoice prices to compensate, according to Wells Fargo. And Deutsche Bank’s Saravelos said the pressure on U.S. firms so far to bear tariff costs is another headwind for the greenback, which is already on its worst start to a year since the 1970s.
Forecasters doubt U.S. corporations will sacrifice profits for much longer. 3M Co. raised its earnings outlook last week, as shifting production and pricing changes will help mitigate the impact of tariffs. Nike Inc. is planning “surgical” price hikes to help soften the blow, as the company expects the levies to increase costs by about $1 billion.
“If consumers and foreign firms are not bearing tariff costs, domestic firms are. That is something that eventually should be reflected in corporate earnings announcements,” Citigroup Inc. chief U.S. economist Andrew Hollenhorst said in a note today. “We will be listening this quarter, but firms may still emphasize uncertainty and (perhaps rightly) expect that the burden sharing can shift in coming months.”
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