“The impact of tariff policy on consumer prices has only just begun,” Bloomberg reported on the 11th, citing a research report from Wall Street investment bank Goldman Sachs. The report said that U.S. consumers and businesses are facing a new wave of pressure from tariff policies. As of June, U.S. companies had absorbed more than 50% of tariff costs, but as companies raise prices, more of the burden will be passed on to consumers, with the share of tariff costs borne by consumers expected to rise to 67%.
Meanwhile, U.S. small businesses—responsible for creating most of the country’s new jobs in recent years—are struggling to cope with the new tariffs. The U.S. Chamber of Commerce, the country’s largest business lobbying group, estimated this month that before the latest tariff policy took effect on August 7, roughly 236,000 small business importers were already facing an annual tariff hit of $202 billion. Goldman Sachs noted that the price impact of tariff policy adds further uncertainty to markets already unsettled by shifting expectations over the pace of interest rate cuts.
U.S. inflation will gradually rise
Goldman Sachs’ latest research shows that as more tariff costs are passed from businesses to consumers, U.S. inflation will be pushed higher.
Several Goldman Sachs economists, including Hazus, said in a recent report that as of June, U.S. consumers were estimated to have borne 22% of tariff costs. However, as the tariffs remain in place for longer, the share borne by consumers will rise sharply to 67%. In contrast, so far U.S. companies have absorbed about 64% of the costs, but as they pass more of them on to consumers, their share will eventually fall to below 10%.
According to Bloomberg, against the backdrop of heated discussions about Federal Reserve interest rate policy, the Goldman Sachs report reinforces the prevailing view among economists that the U.S. government’s broad-based tariff hikes on the rest of the world will push U.S. inflation higher. However, the report also noted that the rise in inflation will be gradual, mainly due to the lag in cost transmission. Goldman Sachs believes companies tend to initially absorb the tariff shock to maintain market share, but over time, these added costs will ultimately filter through to end markets via higher consumer prices.
In the report, Goldman Sachs analysts estimated that so far, tariffs have already lifted the core Personal Consumption Expenditures (PCE) price index—which excludes energy and food and is one of the Fed’s most closely watched inflation indicators—by 0.2%. They expect the core PCE to rise by another 0.16% in July, and an additional 0.5% from August through December, pushing the December core PCE up to as high as 3.2%.
Small and medium-sized enterprises to take the “hardest hit”
According to Business Insider, several major companies, including Adidas and Walmart, have announced they will raise prices on goods sold in the U.S. This means that in the upcoming holiday shopping season, consumers may face price increases on everything from electronics to cars.
A Financial Times survey in St. Louis, a city in the U.S. Midwest, found that businesses reported significant upstream supplier price hikes on many products—sometimes as much as 30%—forcing them to pass on costs to consumers. Panos Kouvelis, professor of supply chain, operations, and technology at Washington University in St. Louis, said: “There is still inventory in the supply chain, but it’s being gradually depleted. Soon, the impact of tariffs on prices will become visible. Small and medium-sized businesses will take the biggest hit.” The report noted that small businesses employ 46% of the U.S. workforce—about 59 million people—and account for 44% of U.S. GDP. This could have far-reaching consequences for the entire economy.
Bloomberg reported that the U.S. Chamber of Commerce estimated this month that there are about 236,000 small importers in the United States with fewer than 500 employees, whose imports exceeded $868 billion in 2023. These companies face a total annual tariff bill of $202 billion—equivalent to about $856,000 per company per year.
Huo Jianguo, vice president of the China Society for World Trade Organization Studies, said on August 12 that with the U.S.’s global “reciprocal tariffs” taking effect on August 7, U.S. companies’ import costs will inevitably rise. For U.S. small and medium-sized enterprises in particular, the raw materials or intermediate goods essential to their production processes will become more expensive, creating a challenge they cannot absorb. They will be forced to pass these costs along, ultimately burdening consumers. This will leave them in a dilemma: holding prices steady will mean losses, while raising prices will hurt sales, shrink the market, and damage operations. “This proves that U.S. unilateral tariffs disrupt the global trade order and production-supply chains, harming others without benefiting itself,” Huo said.
The Federal Reserve’s dilemma
According to Bloomberg, Federal Reserve Vice Chair Michelle Bowman said in a speech last Saturday that she supports three interest rate cuts this year. Bowman said that she favors multiple cuts, and that recent weak labor market data reinforced her view. Such action, she said, “would help avoid further unnecessary deterioration in labor market conditions and reduce the likelihood that the Committee would have to take more significant corrective policy action should the labor market worsen further.” The report noted that, in addition to Bowman and Fed Governor Christopher Waller—who also favors rate cuts—more policymakers are likely to support a September cut.
Employment and inflation data are key to the Fed’s rate decisions. MarketWatch reported that in early August, a weak jobs report rattled markets; now, just as markets are stabilizing, they face critical U.S. inflation figures. Charles Schwab senior investment strategist Kevin Gordon said some are worried about a possible “stagflation” trend—where inflation and unemployment rise at the same time. If inflation data shows prices remain high, he said, the Fed will be in an “even more awkward position.”
Earlier this month, the U.S. Bureau of Labor Statistics (BLS) unexpectedly made a major downward revision to employment figures, raising Wall Street concerns about the reliability of government data. According to CNBC, Tuesday’s inflation data will be particularly significant, but doubts about its validity have grown since the BLS episode. Budget cuts have forced the agency to change its data collection methods, further fueling these concerns. Accurate government data is critical, as the Fed is closely monitoring inflation figures to shape its monetary policy path.
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