Here's who is bearing the cost of Trump's tariffs so far this year

Analysts at Citi and Deutsche Bank report that U.S. companies are largely absorbing the cost of President Trump's tariffs, which have generated over $100 billion this year, rather than foreign firms or American consumers. Their analysis indicates limited pass-through to U.S. consumer prices and minimal absorption by foreign exporters, with Chinese import prices down only 1% despite over 30% tariff increases. This suggests future pressure on U.S. corporate earnings, potential for increased consumer prices, and enhanced bargaining power for America's trading partners, while also being a negative for the dollar.

Analysis

Analysis from both Citigroup and Deutsche Bank indicates that U.S. companies are primarily bearing the financial burden of recent U.S. tariffs, rather than foreign exporters or American consumers. Macro-level evidence shows minimal cost absorption by trade partners; for instance, despite an average tariff increase of over 30% on Chinese goods, U.S. import prices from China have declined by only 1%. Concurrently, the pass-through to U.S. consumer prices has been limited, with significant tariff-related inflation observed in only a few specific categories such as home furnishings and toys. This suggests that U.S. importers are absorbing the tariff costs directly into their profit margins, a trend exemplified by General Motors absorbing $1.1 billion in costs. This dynamic is expected to put downward pressure on U.S. corporate earnings in upcoming quarters. Furthermore, analysts at both banks anticipate delayed inflation, viewing future increases in consumer prices as likely once corporate inventories are depleted. The situation also strengthens the bargaining power of U.S. trading partners, as their exporters are not yet feeling significant pain, and is viewed as an additional negative catalyst for the U.S. dollar.

Key Decisions for Investors

• Investors should increase scrutiny on the upcoming earnings reports of U.S. companies with significant international supply chains, particularly focusing on margin compression and management commentary regarding the ongoing impact of tariffs.
• It may be prudent to monitor leading inflation indicators and consumer discretionary stocks for signs of weakness, as the current dynamic of companies absorbing tariff costs is likely to shift towards higher consumer prices in the coming months.
• Consider the heightened risk to U.S. dollar-denominated assets, as the tariff burden falling primarily on the domestic economy is cited as a negative factor for the currency and may prolong trade negotiations.