Passing through?

Weekly Updates

Tariffs are a tax that occurs high up the supply chain. Everything after the point of import is untaxed. Thus, different stages in the long supply chains between the tax point and the consumer basket could absorb the tax by reducing profit margins. However, there are reasons more of US President Trump’s trade taxes may be passed through to end-consumers.
A rising share of US goods imports are consumer durable goods. Consumers tend to be less aware of durable goods’ price changes. Few people remember the price of an imported washing machine bought five years ago (but vividly recall the price of yesterday’s domestic-manufactured Snickers bar). That makes it easier to pass through trade taxes for durable imports.
Consumers have experienced inflation recently. Trump’s 2018 trade taxes came after a long period of benign inflation. Companies were nervous of customers’ negative reactions to the novelty of price increases. With the post-pandemic inflation fresh in consumers’ minds, companies may overcome that fear and raise prices with confidence.
Trump’s trade taxes are universal and widely talked about. Dramatically increased awareness that imported goods are being taxed makes consumers more inclined to accept price increases as inevitable. Companies might take advantage of that resignation and pass through price increases with impunity.