Tariff costs to companies this year to hit $1.2 trillion, with consumers taking most of the hit, S&P says

S&P Global projects President Trump's tariffs will cost global businesses over $1.2 trillion by 2025, with two-thirds of this burden ultimately passed to consumers, challenging the administration's claims that foreign exporters bear the cost. This analysis, drawing on extensive sell-side data, anticipates a 64 basis point contraction in corporate profit margins this year, gradually moderating by 2027-28, and identifies the removal of the "de minimis" exception as a critical inflection point. The findings underscore a significant systemic wealth transfer and present crucial implications for White House trade policy and Federal Reserve monetary calibration, with long-term effects contingent on corporate adaptation and the evolving tariff strategy.

Analysis

S&P Global projects President Trump's tariffs will impose over $1.2 trillion in costs on global businesses by 2025, a figure deemed conservative. This burden is largely borne by consumers, who are expected to absorb two-thirds of the cost, contradicting the administration's claims of foreign exporter responsibility. Corporate profit margins are anticipated to contract by 64 basis points this year, with a gradual moderation to 8-10 basis points by 2027-28.

The analysis highlights a systemic wealth transfer from corporate profits to other stakeholders, driven by tariffs, trade barriers, and increased logistics costs. A critical inflection point was the May removal of the "de minimis" exception, which significantly amplified tariff impacts on shipping data and earnings. This contrasts with the Federal Reserve's inclination to view duties as a one-time price hit rather than a source of persistent inflation.

While the market consensus anticipates an eventual recovery of profit margins to pre-tariff trajectories, this optimism hinges on firms' ability to adapt through technology, cost discipline, and reshaped global value chains. The long-term impact remains contingent on the evolution of the Trump administration's tariff strategy and ongoing trade tensions, such as the rare earth dispute with China.

Key Decisions for Investors

• Investors should closely monitor corporate earnings reports for evidence of margin compression and management's adaptation strategies, particularly regarding supply chain adjustments and cost discipline.
• Evaluate consumer discretionary spending trends, as the significant tariff burden shifted to consumers could impact demand and overall economic growth.
• Assess companies' exposure to international trade and their ability to reconfigure global value chains, favoring those with robust, diversified supply networks.
• Stay abreast of evolving trade policy developments and geopolitical tensions, as these will dictate the longevity and severity of tariff impacts on specific sectors and companies.