Tariffs are hitting consumers this year, but the effects are not always spelled out in a line-item charge on a receipt.
The current average US tariff rate on imports is about six times as high as it was in January, and the US Treasurysaid that it could collect $300 billion in tariff income for the full year.
These new tariffs are raising the cost of imports, and some US goods are getting more expensive, too, according to data from researchers led by Harvard Business School professor Alberto Cavallo.
In an ongoing study, the HBS Pricing Lab said it analyzed more than 330,000 product listings from four large US retailers and found small but noticeable post-tariff price hikes on both imported goods and competing domestic products.
The researchers found that prices on the imported goods in their study increased by roughly 3% between the first wave of tariffs in early March and the end of June. At the same time, categories of domestic goods that typically compete with imports saw price increases of around 2%.
The data indicates that domestic goods that don’t typically face significant competition from imports, like most food and beverage categories, have not seen a corresponding increase in price.
And although goods from China saw the largest increase in prices in the study, the increase was far below the tariff rates that have vacillated between 10% and 145% on imports from that country during the timeframe.
The researchers said the timing of price increases suggests uncertainty among companies about how the tariffs will play out, given recent changes. Another possible explanation for these smaller, broader price increases on both imported and domestic goods is that they offer retailers a way to pass the cost of tariffs along across a portfolio of products rather than hiking prices on imports alone.
The study points to several other reasons tariffs on imports could affect domestically sourced products.
Many domestically produced goods still rely on imported components that may be subject to tariffs, which would drive up the cost of production.
Other aspects of the supply chain, like shipping and storage, can also become more expensive as importers adjust schedules and capacity in response to new tariff rates.
And domestic brands that typically compete with imports may see an opportunity to raise prices as their customers’ expectations shift.
“If costs are going to rise for importers, there’s a certain incentive for domestic competitors then to raise their prices as well,” UBS chief US economist Jonathan Pingle told Business Insider. The domestic competitors wouldn’t need to increase prices as much as the importers, and, in turn, could still take market share.
“So you could actually have price increases in the economy that are over and above just what the tariff pass-through might be,” Pingle said.
In other words, if deck chairs are largely imported and seeing a post-tariff price hike, then US producers might also see an opportunity or incentive to charge more.
Still, the larger factor at play is that all sorts of companies are having to figure out how to manage the direct and indirect costs associated with the tariffs.
“Business costs are going to rise,” Pingle said. “So we do see the risk of second-round effects over and above the tariffs in the short run.”
Read the full article here
