Who will foot the bill?
This is the question fuelling economists’ debates, the speculation of market players, disagreements between bankers, and Trump’s diatribes: will the hike in US trade tariffs result in a surge in prices for consumers?
The debate is currently far from settled and inflation figures for the month of July, published in the middle of August, only muddied the waters further. On the one hand, we have not seen a clear acceleration in consumer price inflation, reassuring those who believe that the impact of trade tariffs will be benign. However, producer price inflation was much higher than expected, leading to worries that this will be passed on in consumer prices in the coming months.
To provide an appropriate response, it is helpful to reformulate the question: who will foot the bill for trade tariffs today, and who will foot the bill in the future? Whatever Donald Trump thinks, one thing is certain, the bill will not be paid by the trading partners of the US. Whilst some exporters may of course adjust their prices in response to the surge in trade tariffs, the proportion remains modest. According to a recent Goldman Sachs report, up until the middle of June 2025, foreign exporters paid less than 15% of the cost of the trade tariffs. According to the same report, two thirds of the bill has to date been paid by US companies, through a compression of their margins, whilst just under a quarter has hit consumers.
This situation could change dramatically during the second half. Goldman Sachs estimates that by October, two thirds of the costs of trade tariffs could be borne by US consumers. Several elements support this theory. Firstly, a major driver of the recent surge in producer price inflation is a sharp rise in the “final demand trade services” component. To some extent, this measures changes in margins received by wholesalers and retailers and its acceleration suggests that companies are indeed starting to pass on the hike in costs related to trade tariffs in selling prices.
Secondly, there were comments on the impact of trade tariffs during the recent quarterly reports of retailers. The Walmart CEO indicated that with regards to the impact of trade tariffs, “we’ve continued to see our costs increase each week”, adding of consumer behaviour in response to price hikes that, “we see more adjustments in middle and lower income households”. This statement suggests that the company is passing on higher costs in its selling prices, which echoes the statement by the Home Depot CFO explaining that the company was going to raise prices for some products.
The greatest impact of trade tariffs on consumer prices may thus be still to come. This would further complicate the already uncomfortable position of the US Federal Reserve. Under pressure from the White House and against the backdrop of the race to succeed its Chair Jerome Powell, there is a strong chance that the central bank will cut interest rates in September, only to see a marked pick-up in inflation shortly thereafter. A particularly unpleasant misstep for any central bank.