U.S. consumers bearing more than half the cost of tariffs so far, Goldman Sachs says

A new Goldman Sachs report indicates U.S. consumers are shouldering up to 55% of the costs from recent tariffs imposed by President Trump, contributing to inflation exceeding the Federal Reserve's 2% target. Analysts project this consumer burden could escalate to 70%, adding 0.6% to the Fed's preferred inflation measure, if proposed tariffs on goods like furniture are implemented. Despite White House assertions that foreign exporters bear the cost and tariff revenues are substantial, the report highlights persistent inflationary pressures and market uncertainty, exacerbated by potential tariff escalations with China and an impending Supreme Court decision on tariff legality.

Analysis

A recent Goldman Sachs report indicates U.S. consumers are currently shouldering up to 55% of the costs from imposed tariffs, contributing to persistent inflationary pressures. The Bureau of Labor Statistics' CPI stood at 2.93% in August, while the Federal Reserve's preferred inflation measure reached 2.7%, both exceeding the central bank's 2% target. This consumer burden could escalate to 70%, adding 0.6% to the Fed's preferred measure, should proposed tariffs on goods like furniture and kitchen cabinets be implemented.

The White House maintains that foreign exporters ultimately bear the tariff costs, citing over $215 billion in year-to-date tariff revenues, which are earmarked for programs like WIC and potential household rebates. However, the Goldman Sachs analysis suggests that while some foreign exporters and U.S. businesses are absorbing costs, preventing even higher consumer prices, the primary burden remains with domestic consumers. This contrasts with the 2018 trade war where foreign exporters bore no significant share.

Future tariff impacts are subject to several variables, including the U.S. Supreme Court's upcoming ruling on November 5th, which businesses may be anticipating. Furthermore, despite administration reassurances, analysts highlight "large risks" from potential escalations, such as doubling tariffs on China, which would significantly impact markets and supply chains. The delayed September CPI data due to the government shutdown also adds to economic uncertainty.

Key Decisions for Investors

• Investors should closely monitor upcoming inflation data, particularly the delayed September CPI and future releases, given the direct link between tariffs and consumer price increases.
• Investors should assess their portfolio's exposure to sectors heavily impacted by tariffs, such as retail, manufacturing, and import-dependent industries, and consider potential supply chain diversification strategies.
• The Supreme Court's November 5th hearing on tariffs represents a critical legal event that could reshape trade policy and business operating environments, warranting careful attention.