Economic Impact of Tariffs on U.S. Consumers and Businesses
A recent analysis has shown that the costs associated with tariffs are primarily being shouldered by U.S. businesses and consumers, rather than foreign exporters. According to economists at Goldman Sachs, as of August, U.S. businesses were absorbing about 51% of these costs, while consumers were taking on 37%. Only 9% of the costs were incurred by foreign exporters, with around 3% being linked to possible tariff evasion.
Goldman Sachs highlights that the current burden falls heavily on U.S. companies mainly because many tariffs have only recently come into effect. It’s a process, as businesses need time to adjust prices for consumers and negotiate better rates with suppliers abroad. If upcoming tariffs impact prices similarly to those already in place, it’s expected that consumers will ultimately end up carrying the bulk of the financial load.
Concerns Around Inflation
Goldman economists predict that by the end of 2025, consumers will absorb 55% of tariff costs, with 22% attributed to U.S. businesses, 18% going to foreign exporters, and 5% tied to possible tariff evasion. The estimate for businesses may be on the conservative side, as those involved in importing goods are likely dealing with a larger share of tariff costs, whereas domestic producers can leverage tariffs to raise prices and bolster their profit margins.
Additionally, the report indicates that tariffs have added nearly half a percentage point to inflation this year, a trend expected to persist. The core personal consumption expenditure (PCE) prices might see an increase of 0.44 percentage points this year, which may rise dramatically due to tariff-related pass-through costs. Ultimately, core PCE inflation is anticipated to hit 3% year-on-year by December 2025, or 2.2% once tariff impacts are excluded.
Federal Reserve’s Stance
The Federal Reserve has noted an uptick in inflation linked to these tariff costs, recently reporting PCE inflation at 2.7% and core PCE at 2.9% in August—both figures above the Fed’s 2% target. This year, policymakers had initially hesitated to reduce interest rates due to concerns regarding tariffs and their effect on the labor market. However, with the economy showing signs of slowing down, a 25 basis point interest rate cut was executed in September and another cut is anticipated at the upcoming meeting.
