domestic consumers bear the brunt of Trump's tariffs, not foreign corporations
In a recent development, President Donald Trump has reiterated his claim that the Philippines will pay a 19% tariff, mirroring his characterization that other countries pay such rates. However, economic analysis suggests that the ultimate bearers of the cost of these tariffs are primarily American consumers, workers, and businesses, rather than foreign exporters.
The tariffs function like a large tax increase, increasing federal tax revenues but at the cost of reduced economic growth and income for Americans. This effect tends to reduce U.S. economic growth and employment, particularly hurting manufacturing and agriculture sectors. Retaliatory tariffs from other countries further amplify these negative impacts by reducing U.S. exports and output.
According to the Peterson Institute's research, tariffs disproportionately damage U.S. manufacturing and agriculture by reducing output and employment while raising prices. Capital market responses indicate that investors see tariffs as increasing risks to U.S. assets, which can raise borrowing costs and depress investment, thus deepening economic harm for U.S. workers and businesses.
The tariffs are reflected in corporate earnings announcements, with companies like General Motors Co. reporting that the tariffs dented their profits by over $1 billion. Nike Inc. is planning "surgical" price hikes to help soften the blow of tariffs, as the company expects the levies to increase costs by about $1 billion. The increase in prices for toys and appliances indicates that tariff expenses are being passed on to consumers.
However, foreign suppliers are showing some signs of absorbing part of the tariff impact to keep goods flowing to the U.S. Export prices in Japan have contracted for three straight months, with Japanese carmakers cutting prices to the U.S. in June by a record in data going back to 2016.
George Saravelos, global head of FX research at Deutsche Bank AG, stated that the tariffs are likely to put more pressure on U.S. consumer prices. The relatively tame readings in the consumer price index this year underscore firms' hesitation to pass on tariffs to customers. Deutsche Bank's Saravelos also stated that the pressure on U.S. firms to bear tariff costs is another headwind for the U.S. dollar.
Firms may still emphasize uncertainty and expect that the burden sharing can shift in coming months. Forecasters doubt U.S. corporations will sacrifice profits for much longer, with 3M Co. raising its earnings outlook last week due to shifting production and pricing changes that will help mitigate the impact of tariffs.
In summary, American consumers, workers, and businesses bear the economic costs of Trump’s tariffs through higher prices, job losses, lower incomes, and slower growth, even though the tariffs raise government revenues. Retaliatory measures by trade partners and investment effects worsen these burdens on the U.S. economy.
The tariffs not only increase federal revenues but also burden American consumers, workers, and businesses, as they lead to higher prices, job losses, lower incomes, and slower growth. This increased cost for U.S. businesses in the manufacturing and agriculture sectors may also compel them to make changes in their profit strategies, such as implementing price hikes or shifting production methods.
