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Tariffs

Trump's Tariffs to Fuel Inflation, Increasing Burden on Consumers

Strategic Insights

— 2 min read

As U.S. President Donald Trump's tariffs continue to have a ripple effect on the economy, economists at Goldman Sachs warn that the burden of the tariffs will increasingly be passed on to consumers, exacerbating inflation. Although American businesses have borne most of the brunt of the tariffs so far, the share of the cost borne by consumers is expected to rise significantly, with an estimated 67% of the tariff cost falling on consumers by the end of the year.

Economists, including Jan Hatzius, have highlighted that the tariffs will have a phased impact on the economy, with companies initially absorbing the costs and eventually passing them on to consumers. Goldman Sachs analysis shows that the impact of tariffs has so far increased core personal consumption expenditures (PCE) by 0.2%, and is expected to increase by another 0.16% in July and another 0.5% for the rest of the year.

Key Takeaways:

  • The share of tariff costs borne by American consumers is expected to rise to 67% by the end of the year, up from 22% in June.
  • The impact of tariffs has so far increased core PCE by 0.2%, but is expected to increase by another 0.16% in July and another 0.5% for the rest of the year.
  • While U.S. companies currently bear about 64% of the tariff hit, this share is expected to fall below 10% as they pass more of the costs on to consumers.
  • The impact of tariffs on U.S. businesses has been mixed, with some bearing a greater share of the brunt, while domestic producers shielded from external competition have benefited through price increases.
  • Foreign exporters have absorbed about 14% of the tariff costs as of June, but this share could rise to 25%.

Stories and Initiatives:

  • Jan Hatzius, Goldman Sachs economists, have highlighted the phased impact of tariffs on the economy.
  • American Compass founder and chief economist, Oren Cass, has argued that the inflation concern is a sustained increase in the overall price level.
  • Goldman Sachs analysis shows that companies did not raise prices all at once, supporting the argument that tariffs will eventually lead to inflation.

Statistics:

  • The share of tariff costs borne by American consumers is expected to rise to 67% by the end of the year.
  • The impact of tariffs has so far increased core PCE by 0.2%.
  • The expected increase in core PCE due to tariffs is 0.16% in July and another 0.5% for the rest of the year.
  • U.S. companies currently bear about 64% of the tariff hit.
  • Foreign exporters have absorbed about 14% of the tariff costs as of June.

Sources:

  • Goldman Sachs, report by Jan Hatzius
  • American Compass, founder and chief economist, Oren Cass
  • Bloomberg Trumponomics podcast
  • https://cccme.org.cn/news/details.aspx?id=860E17461E9DBB187932E2F2893C1035&classid=8C92359A9456952E&xgid=F868932F64EB7AAF

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