The White House Still Can’t Grasp That Americans Pay US Tariffs

Multiple independent studies and price series indicate US tariffs are being passed through to domestic firms and consumers rather than absorbed by foreign exporters: nonfuel import prices remained on trend despite effective tariff rates as high as ~10%, which would have required roughly an 8% price cut by exporters to fully absorb the duties. At least seven independent research teams — including a New York Fed paper that estimates consumer/firms bore ~100% of the burden in 2018 and ~90% in 2025 — find higher retail prices and inflationary pressure from the tariffs, a conclusion that has prompted public pushback from White House trade advisers.

Analysis

Market structure: Tariffs (effective rates cited up to ~10%) function as an ad-valorem tax with academic estimates of ~90% pass‑through to US buyers; winners are domestic input producers (steel/metals, some domestic manufacturing) who gain pricing power short-term, losers are import‑intensive retailers, apparel, electronics and end consumers facing ~5–8% higher out‑of‑pocket costs. Pricing dynamics will favor firms with durable brand pricing power (PG, KO) and penalize low‑margin importers; market share will shift slowly as suppliers reprice and inventory cycles unwind over 1–6 months.

Risk assessment: Tail risks include rapid escalation (broader tariffs to 20–25%), large retaliatory measures on agriculture/tech, or a Fed response that induces stagflation—each could knock S&P EPS 5–15% in 6–12 months. Immediate (days–weeks) risks are retail repricing and inventory markdowns; short (0–6 months) risks are margin compression and FX volatility; long-term (1–3 years) risk is capex misallocation and slower productivity from persistent protection.

Trade implications: Mechanical plays are long domestic materials (NUE, STLD) and short import‑exposed apparel/retail (PVH, GPS or XRT) while hedging inflation with TIPS/commodity exposure; options can define risk (3–6 month call spreads on producers, put spreads on retailers). Position sizing should reflect 90% pass‑through assumption, target 3–6 month mean reversion around CPI prints, and be trimmed on a tariff rollback signal.

Contrarian angles: Consensus misses second‑order demand destruction—higher consumer prices can ultimately hurt domestic producers if volumes fall >5–10%, and some foreign exporters may begin absorbing small slices over 6–12 months in hyper‑competitive segments. Historical parallel: 2002 US steel tariffs gave short protection but long‑run domestic output fell; watch for similar outcome if tariffs persist >2 years. Unexpected currency appreciation or supply diversification could blunt the trade winners.

Key Decisions for Investors

• Establish a 2% portfolio long in US steel names: NUE (1%) and STLD (1%) within 10 trading days; target 12–18% upside over 3–6 months, set stop‑loss at 8% and trim by 50% on 20% gain or if CPI core ex‑food/core energy surprises < +10 bps versus consensus.
• Initiate a 2% short position split between PVH (1%) and GPS (1%) or substitute a 2% short in XRT if diversified exposure preferred; expect 10–20% downside in 3 months from margin compression—cover on signs of foreign price absorption >20% reported in trade data or tariff rollback announcement.
• Allocate 3% to inflation hedge via TIP (iShares TIPS ETF) within 30 days to protect real returns if tariff pass‑through keeps CPI elevated; reduce allocation if 6‑month breakeven inflation falls by >50 bps from current levels.
• Execute defined‑risk options: buy a June 2026 call spread on NUE (buy ~5% OTM, sell ~15% OTM) sized 0.5% portfolio notional, and buy a June 2026 put spread on PVH (5–10% OTM) sized 0.5% to asymmetrically capture upside in producers and downside in importers over the next 3–4 months.
• Active trigger/monitor: track next two monthly CPI prints and any White House tariff announcements; if headline CPI rises >20 bps above consensus or new tariffs >5% announced, increase industrials/materials exposure by +1–2% and add additional short exposure to import‑heavy retailers.