US Consumers to Bear Brunt of Tariff Hit, Goldman Economists Say

Goldman Sachs economists project a significant shift in the burden of US tariffs, with consumers increasingly absorbing costs previously borne by companies. While consumers have absorbed an estimated 22% of tariff costs through June, this share is expected to rise to 67% as firms pass on expenses through price hikes, adding uncertainty to the Treasury market and interest rate outlook.

Analysis

Research from Goldman Sachs Group Inc. economists, including Jan Hatzius, indicates a significant shift in the economic burden of U.S. tariffs is underway. The analysis posits that U.S. companies, which have absorbed the majority of tariff costs to date, will increasingly pass these expenses on to consumers through price hikes. According to the report's estimates, the consumer share of the tariff burden, which was 22% through June, is projected to rise to 67% if the latest tariffs follow historical patterns. This development introduces a material source of uncertainty into the U.S. Treasury market, as the prospect of rising consumer prices complicates the outlook for inflation and influences market bets on the pace and magnitude of future interest rate cuts by the Federal Reserve.

Key Decisions for Investors

• Investors should anticipate heightened inflation risk, which could reduce the probability or scale of future Federal Reserve interest rate cuts and thus warrants a review of fixed-income portfolio duration.
• Consider reducing exposure to consumer discretionary sectors, as companies in this space may face margin compression or reduced demand if they pass tariff-related price increases on to households.
• Focus on identifying companies with strong pricing power and resilient supply chains, as these firms will be better positioned to protect their profitability amidst rising import costs.