Tariffs do not burden American consumers and businesses.
If tariffs cause inflation then the economic data from this week would reflect that. But instead, it shows resilience and negotiation strength, almost like a surprising twist.
The Consumer Price Index (CPI) stayed relatively stable in May. The headline CPI increased by just 0.1%, while core inflation—excluding food and energy—also rose by a mere 0.1%. Over the last year, prices overall have gone up by only 2.4%, and core prices have risen just 2.8%.
Similarly, the Producer’s Price Index (PPI) told a comparable story. The Bureau of Labor Statistics revealed on Thursday that final demand prices climbed only 0.1%. Product prices saw a marginal rise of 0.2%, translating to a total increase of 1.3% over the past year. Service prices went up by 0.1%. Overall, the PPI has been at 2.6% for the year, with Core PPI increasing by just 3.0%. Even the so-called “supercore” PPI, which excludes wholesale and retail margins termed as trade services, has only increased by 2.7%.
This isn’t an inflation spiral. Instead, many economists argue that it highlights what’s actually happening with foreign producers dealing with tariffs. Customs duties are essentially taxes levied on foreign producers.
Margins are rising, but prices remain stable.
One clear takeaway from the PPI report is the Increase in trade margins—the gap between what a company pays and what it charges. You would think if tariffs drove up costs and companies struggled to pass those costs to consumers, then these margins would decrease.
But that’s not the case here.
Wholesale margins for machines and vehicles surged by 2.9%. Metals, minerals, and ores saw a staggering jump of 4.9%. Retail margins for apparel and alcohol are also on the rise.
Intermediate Demand Trade Services—a margin on goods sold between businesses for further processing—itching upward by 0.7% showcases concentrated profits in the Construction, Metals, and Logistics sectors.
These are not insignificant margins. They indicate growth in business markups—even in areas marked as “custom stocks.”
Meanwhile, consumer prices have remained flat. Final demand for services, excluding trade, transportation, and warehousing, stayed steady this month.
This mix of rising margins while prices hold steady suggests companies are not passing increased costs onto consumers. Instead, they seem to be offloading them onto upstream suppliers. We can see a “Passback” to suppliers, rather than a pass-through to consumers.
Customs inflation? More like customs deflation.
The common viewpoint suggests that tariffs act as taxes on consumers. However, the data counters that notion. It appears that if US companies maintain stable pricing and increase their margins, the cost burden is shifting to foreign producers.
A new dynamic emerges here. Tariffs → Discounts for suppliers to maintain access → US companies keeping prices steady → Expanding margins.
This trend shows up in the data. Prices for unprocessed intermediate products fell by 1.6% in May. Processed products in terms of intermediate demand prices only rose by 0.1%.
For instance, even if input prices for non-ferrous metals went up, the final price increases stalled at the inter-business level. Where’s the inflation in final products? It’s simply not showing up.
A Golden Age for Workers, not Foreign Manufacturers.
And here’s where it gets interesting: wages are increasing faster than prices. Average hourly earnings have climbed by 3.7% annually up to May. For production and non-supervisory workers, the average hourly earnings have surged by 4.6%. This significantly surpasses the inflation rate.
So, what’s the takeaway? Tariffs don’t narrow down consumers; they pressure foreign suppliers and safeguard American wages. It’s not a case of economic deception. It stands for economic sovereignty.
