U.S. 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 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 consumer market.
But academic studies, surveys and comments from businesses show that through the first months of Trump's new trade regime it is U.S. 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 U.S. 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.
WHO IS EATING THE TARIFFS?
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 Turkey.
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 U.S. import prices, which don't include tariffs, showed foreign exporters have been raising their prices in dollars and passing on to their U.S. buyers part of the greenback's depreciation against their currencies.
"This suggests foreign producers are not absorbing much if any of the U.S. 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, Turkey and India have all risen, with Japan the only exception.
FULL IMPACT OF TARIFFS YET TO BE FELT
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 still underway. It is seen taking months longer as exporters, importers and consumers jostle over who pays duties worth round $30 billion 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 out over time, 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 shows. Only 18 companies have warned on profit margins.
Separate Reuters analyses of e-commerce 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.
The Fed's newest governor, Stephen Miran, on leave from the Trump administration, argues the tariffs are not inflationary and has brushed off concerns about what he called "relatively small changes in some goods prices."
A Boston Fed "back of the envelope" calculation projected tariffs would push up core inflation by 75 basis points.
Fed Chair Jerome Powell said tariffs accounted for perhaps 30-40 basis points of the latest core inflation reading of 2.9% but the effect should be "relatively short-lived."
The Peterson Institute for International Economics estimated that inflation over the next year would be 1 percentage point higher than if tariffs hadn't been raised but would then fall back.
GLOBAL TRADE SEEN SUFFERING AS TARIFFS BITE
The rest of the world, however, has no reason to celebrate.
As U.S. consumers struggle to keep up with rising prices, demand for exports is likely to slow. An S&P Global survey of purchasing managers at companies all over the world showed new export orders contracting at an increasing pace since June.
European Union exports to the United States fell by 4.4% from the prior year in July, the latest month for which data was available, and in the bloc's former powerhouse Germany they were down 20.1% in August.
The World Trade Organization, too, slashed its forecast for global merchandise trade volume growth next year to just 0.5%, citing a delayed impact from U.S. tariffs. U.S. shipment data tracked by German think tank the Kiel Institute also showed a clear downtrend.
While that all may partly reflect strong front-loading of orders earlier in the year in anticipation of tariffs, it is also prompting caution about the trade outlook.
Dutch bank ING expected a 17% reduction in EU goods exports to the U.S. over the next two years, costing the bloc 30 basis points of GDP growth.
"The expected impact of U.S. tariffs hasn't materialized yet," Ruben Dewitte, an economist at ING, said. "We anticipate these effects will become more visible in the coming months."
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 consumer market.
But academic studies, surveys and comments from businesses show that through the first months of Trump's new trade regime it is U.S. 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 U.S. 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.
WHO IS EATING THE TARIFFS?
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 Turkey.
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 U.S. import prices, which don't include tariffs, showed foreign exporters have been raising their prices in dollars and passing on to their U.S. buyers part of the greenback's depreciation against their currencies.
"This suggests foreign producers are not absorbing much if any of the U.S. 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, Turkey and India have all risen, with Japan the only exception.
FULL IMPACT OF TARIFFS YET TO BE FELT
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 still underway. It is seen taking months longer as exporters, importers and consumers jostle over who pays duties worth round $30 billion 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 out over time, 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 shows. Only 18 companies have warned on profit margins.
Separate Reuters analyses of e-commerce 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.
The Fed's newest governor, Stephen Miran, on leave from the Trump administration, argues the tariffs are not inflationary and has brushed off concerns about what he called "relatively small changes in some goods prices."
A Boston Fed "back of the envelope" calculation projected tariffs would push up core inflation by 75 basis points.
Fed Chair Jerome Powell said tariffs accounted for perhaps 30-40 basis points of the latest core inflation reading of 2.9% but the effect should be "relatively short-lived."
The Peterson Institute for International Economics estimated that inflation over the next year would be 1 percentage point higher than if tariffs hadn't been raised but would then fall back.
GLOBAL TRADE SEEN SUFFERING AS TARIFFS BITE
The rest of the world, however, has no reason to celebrate.
As U.S. consumers struggle to keep up with rising prices, demand for exports is likely to slow. An S&P Global survey of purchasing managers at companies all over the world showed new export orders contracting at an increasing pace since June.
European Union exports to the United States fell by 4.4% from the prior year in July, the latest month for which data was available, and in the bloc's former powerhouse Germany they were down 20.1% in August.
The World Trade Organization, too, slashed its forecast for global merchandise trade volume growth next year to just 0.5%, citing a delayed impact from U.S. tariffs. U.S. shipment data tracked by German think tank the Kiel Institute also showed a clear downtrend.
While that all may partly reflect strong front-loading of orders earlier in the year in anticipation of tariffs, it is also prompting caution about the trade outlook.
Dutch bank ING expected a 17% reduction in EU goods exports to the U.S. over the next two years, costing the bloc 30 basis points of GDP growth.
"The expected impact of U.S. tariffs hasn't materialized yet," Ruben Dewitte, an economist at ING, said. "We anticipate these effects will become more visible in the coming months."
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