Trump’s Tariff Tantrum: Price Hikes Just Getting Started

By Duane Reynolds

According to a Goldman Sachs analysis, U.S. shoppers have only felt about 22% of the tariff hit so far, but that share could jump to 67% as new levies take effect. In other words, the impact of President Donald Trump’s trade war on consumer prices is just beginning to be felt, and it’s poised to get a lot worse.

Consumers to Shoulder More Tariff Costs

U.S. companies initially bore the brunt of Trump’s tariffs, largely eating the costs instead of immediately marking up prices. Goldman Sachs economists estimate American businesses absorbed roughly 64% of tariff costs up to June by sacrificing some profit margins. Big names like Apple and General Motors have reported hundreds of millions in tariff-related hits to their earnings. This “silent subsidy” by firms kept consumer prices from spiking early on, but it couldn’t last forever.

• • • U.S. Businesses: 64% of tariff costs so far have come out of company profits (e.g. higher input costs that firms didn’t fully pass on). Goldman predicts this share will plummet to <10% as companies reach their limit and start raising prices. Some domestic manufacturers even took advantage of tariffs by raising their own prices.

    • Foreign Exporters: 14% of the costs have been borne by overseas suppliers through discounts or currency adjustments. Their share might rise to 25% as foreign firms adjust prices to stay competitive.

    • U.S. Consumers: 22% of the tariff bill has hit Americans’ wallets so far with higher prices at checkout. This burden is forecast to surge to about 67% as companies increasingly pass costs along. In short, two-thirds of the tariff tax will end up coming out of consumers’ pockets.

Many retailers initially “held the line” on pricing when tariffs were first announced, trying not to scare off customers. For example, Home Depot and Costco promised to avoid raising prices on key goods, absorbing costs internally. But tariff pressure has been mounting. Even Walmart’s CEO warned that higher tariffs “would result in higher prices” for shoppers. As more import taxes kick in on everyday products, consumers can expect to see price tags creep upward on everything from home goods to groceries.

Tariffs Stoke an Inflation Fire

The net result of these tariffs is faster inflation. Goldman Sachs analysts project that core PCE, the Fed’s preferred inflation gauge, will climb to 3.2% year-on-year by this December (For context, it was about 2.8% in June.) They estimate that without Trump’s tariffs, core inflation would be closer to 2.4%, meaning the trade war is adding nearly a full percentage point to inflation. In fact, tariffs have already nudged core PCE up by roughly 0.2% so far, with another 0.5% boost expected over the rest of the year. In plain terms, that’s a significant inflationary push attributable directly to tariff policy.

This report adds weight to what many economists and industry groups have been saying all along: tariffs are essentially a tax on American consumers. Tariffs are imposed on importers, who eventually pass those added costs to customers in the form of higher prices. It’s widely accepted that broad import duties will fuel inflation, raising the overall price level that households face. There is some debate at the margins – for instance, whether a one-time jump in prices from tariffs counts as “true” inflation in a monetary policy sense,  but the practical effect for consumers is the same: you pay more.

Markets Jittery on Rate-Cut Bets

The tariff-driven uptick in inflation is injecting more uncertainty into financial markets, especially the bond market. Investors are now obsessively parsing economic data for hints of how the Federal Reserve will respond. Bond traders have been whipsawed by shifting expectations on the pace of interest rate cuts. Just last week, the 10-year Treasury yield jumped in anticipation of stubborn inflation, only to dip again on hopes that the Fed might still cut rates if price pressures ease.

At the moment, futures markets are betting on better than an 80% chance that the Fed will cut rates at its next meeting. However, beyond that next meeting, all bets are off. The prospect of further rate relief in coming months is clouded by the unknown impact of tariffs on inflation. If inflation comes in hot because of new tariffs, the Fed could hesitate to ease policy as quickly as traders once hoped. In short, Trump’s trade war has made the Fed’s path much harder to predict, and markets are on edge waiting for clarity.

Trump vs. The Fed: An Unconventional Showdown

Ironically, President Trump’s own policies are part of what’s complicating the Fed’s job – yet he’s been anything but patient with the central bank. It’s highly unusual for a U.S. president to publicly browbeat the Federal Reserve, but Trump has broken with convention in dramatic fashion. He has loudly demanded interest rate cuts on Twitter and in speeches, blaming the Fed for holding back the economy. He even mused that Fed Chair Jerome Powell should perhaps “resign” if he won’t slash rates at the president’s behest. Powell, whom Trump himself appointed in 2018, has politely refused to bow out.

In a bid to tilt Fed policy his way, Trump also installed Stephen Miran, a vocal Fed critic, into a key Federal Reserve board seat. This has further eroded the traditional firewall between the White House and independent monetary policymakers. Meanwhile, Fed Chair Powell and his colleagues have so far held their ground. The Fed voted several times this year to keep interest rates steady in the 4.25–4.50% range, stressing they need to see how tariffs play through the economy before making any cuts. That cautious stance has enraged Trump, who accuses the Fed of choking off growth.

The situation borders on the surreal: The president is effectively lighting an inflation fire with tariffs, then berating the firefighters for not dousing it fast enough. Trump insists his tariffs are paid by foreign countries, even urging companies like Walmart to simply “eat the tariffs” rather than raise prices, but the data tell a different story. Ultimately, American consumers are poised to pay much of the price for the trade war – and the Federal Reserve is stuck in the middle, trying to balance recession fears against rising inflation. It’s a high-stakes tightrope act for the economy, with politics and policy pulling in opposite directions.