Customers look set to bear the tariff cost burden
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Illustration: Sarah Grillo/Axios
New inflation data confirms anecdotes from Corporate America: U.S. importers are bearing the brunt of tariffs so far — costs that look set to be passed along to consumers.
Why it matters: The extent to which higher trade-related costs fall more heavily on overseas suppliers, American companies or U.S. consumers will define the Trump-era economy in the years ahead.
Driving the news: The Producer Price Index, a measure of prices paid to wholesalers, came in fiery hot, rising 0.9% in July — the biggest gain in three years. For context, economists expected a mere 0.2% monthly increase, following a flat reading in June.
- The bulk of that increase stemmed from a gauge of profit margins included in the report's measure of service sector costs.
- Within services, margins at wholesalers and retailers rose 2%, with stronger margins for machinery and equipment wholesalers leading the surge.
Between the lines: President Trump has imposed some of the highest tariffs in a century on foreign goods. The U.S. government collected almost $30 billion in tariff-related revenue in July — a new monthly record — according to the Treasury Department.
- Someone is paying. The tariffs are raising costs for businesses in a way that — at least in July — pushed wholesalers to hike prices to cushion the blow to profits.
- The data raises "questions about the risk of stronger tariff passthrough looking forward," Evercore ISI economist Marco Casiraghi wrote in a client note. "If the scope for compressing margins in the wholesale and distribution sector remains limited, higher import prices would eventually be passed on to consumers."
What to watch: "In some industries, the share that's paid by the consumer will probably be rising over time," Chicago Fed president Austan Goolsbee told reporters Wednesday.
- "We talked to a major apparel manufacturer who said that they're planning price increases for the tariffs that have already been put in place," Goolsbee added.
- But other industries are "holding their breath to figure out where things are going to settle before incorporating them into price increases," he said.
The intrigue: Earlier this week, the Consumer Price Index indicated more muted tariff-related price increases than in June.
- "I think given the amount of revenue the tariffs ... have raised — and yet the lack of any pass-through to the end user, I think is stunning," Joe Lavorgna, an economist who serves as the senior counsel to Treasury Secretary Scott Bessent, told Axios after the report was released.
What to watch: The White House is betting that tariff-related price hikes will fall on exporters, in the form of them accepting lower prices for their goods — or that businesses will accept a hit to their margins.
- Trump this week called on Goldman Sachs to fire its economist after it issued a report predicting that while U.S. businesses have initially absorbed the tariffs, the impact will ultimately shift to consumers.
