You may have read the Administration is demanding that one of the largest U.S. retailers “eat the tariffs.” This was the Administration’s response to the retailer announcing that it is raising prices as a result of the tariffs. The Administration has insisted throughout this trade war that foreign exporters would absorb the tariffs. If that were the case, then there would be nothing for retailers to “eat.” By telling U.S. retailers to “eat the tariffs,” the Administration is giving up the ghost.
The Truth Remains About Tariffs
The truth is that there was never going to be a circumstance where foreign exporters absorbed the tariffs. Never. It was always going to be the case that tariffs would be passed on to U.S. retailers and then to consumers. Always. The Administration will try to blame U.S. retailers once the tariffs really start to impact consumers, but don’t be fooled when that happens. This is 100% on the Administration. The retailers are doing precisely what for-profit enterprises are supposed to do when the government jacks up their cost structure.
New Vocabularies Don’t Change The Economic Realities
Some companies are starting to change their vocabularies in earnings calls and other public statements to evade the Administration’s wrath. However, the economic realities facing those companies are the same. And don’t expect shareholders of those companies to fall for the “eat the tariffs” nonsense. Shareholders are not going to carry the Administration’s gambling debt nor should they. Shareholders will expect their companies to raise prices in response to tariffs and preserve profit margin.
Keep in mind that these are some of the largest retailers in the world announcing price increases. They have more purchasing power than most any other company on the planet. Yet they are being forced to pay increased prices to foreign exporters as a result of the tariffs. If these behemoths have to pay higher prices, then the rest of us mere mortals don’t stand a chance.
These Are Not Isolated Incidents
Allianz recently published the results of a survey of 4,500 exporters across multiple countries, including the U.S. According to the survey, the go-to strategy for dealing with tariffs remains increasing prices. 54% of U.S. companies in the survey plan to raise prices. The second strategy is to find new trading channels. Companies that traditionally exported to the U.S. are looking for new trading partners in the EU and Asia. This is another bit of fallout that the Administration doesn’t seem to have accurately calculated.
I know I have spilled a good amount of ink writing about the trade war. But I happen to think it is an exceedingly important issue, second only to our national debt. The trade war was wholly avoidable and is entirely self-inflicted. The Administration alone is responsible for the fallout.
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