One of our beloved U.S. automakers just announced price increases on three vehicles assembled in Mexico by as much as $2,000. This may be the proverbial canary in the coal mine whistling about the inflationary effects of tariffs. Mind you, the automaker simply followed the path to Mexico plowed by our government 30 years ago (NAFTA). That same government is now punishing the automaker for having complied with free trade policy.
Manufacturers Cannot Properly Plan Without Consistent Policy
Multiple automakers suspended guidance to their investors or made downward adjustments given the tariff uncertainty. Companies don’t know where or how to deploy their capital, or how to forecast pricing and cost models, so they are standing around on one foot waiting for some consistent policy to be announced.
It Will Take Some Time Before Consumers Feel The Impact Of Tariffs
Consumers will not feel the price impact for a bit. The original China tariffs (145%/125%) were effectively an embargo that halted trade between the U.S. and China. As a result, supply chains between China and the U.S. were interrupted and will take some time to be reinvigorated. We may see some impact of the China tariffs sooner, but we will want to pay particular attention in June and July as products that are being manufactured in China now start to find their way onto retail shelves in the U.S.
We Should Keep Score
I mentioned a few weeks ago that when the U.S. inevitably started to announce trade deals, we would need to take stock of how we fared in the negotiations. That time is approaching. Every time the cost of something increases as a result of the tariffs (like the vehicles mentioned above), that is the tariff being passed onto us as consumers. It is a tax increase. It may not be 100% of the tariff, but it certainly will not be 0% either. When all is said and done, if the tariffs hold, I think the tax increase on the American people will be significant. Time will tell.
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