Evercore ISI's Roger Altman: Tariffs will eventually be passed on dollar-for-dollar to consumers

Key Concepts:

• Trade tariffs and their impact on consumers and businesses
• Inflation and economic slowdown
• Onshoring of production
• Market behavior and investor enthusiasm
• GDP growth forecasts

Trade Tariffs: Short-Term Illusion vs. Long-Term Reality

Roger Altman likens President Trump to a "magician at the circus" who creates a dramatic spectacle with threats and shifting deadlines, ultimately pulling a "15% tariff deal out of a hat." While this may initially seem positive, Altman argues that these tariffs are ultimately detrimental to American consumers and businesses.

• The Illusion: The initial positive reaction is due to increased inventories and temporary absorption of tariffs by producers and retailers.
• The Reality: Eventually, the tariffs will be passed on "dollar for dollar" to consumers, leading to reduced consumption, slower growth, fewer jobs, and lower profits.
• Data Lag: The negative effects are not immediately apparent in the data due to inventory adjustments and supply chain tweaks.

Inflation and Economic Slowdown: The Dual Threat

Altman expresses concern about both inflation and economic slowdown, attributing them, in part, to the trade policies.

• GDP Growth: Pre-Trump, the consensus forecast for GDP growth in 2025 was 2-2.5%. It has now been revised down to 1-1.5%.
• Inflation: Core PCE (Personal Consumption Expenditures) is expected to be around 3% for the second half of the year, significantly higher than previous expectations.
• Source: These figures are based on projections from reputable macroeconomic departments, such as Goldman Sachs (1.1% GDP growth forecast).

Onshoring: A Distant Promise

While acknowledging the potential for increased production and onshoring in the United States, Altman emphasizes the long time frame required for these benefits to materialize.

• Timeframe: Onshoring of certain goods production could take "three, four, five years," depending on the specific industry.
• Interim Negatives: The negative effects of tariffs will be felt in the interim period before any significant onshoring benefits are realized.
• Example: "Baseball hats are not" susceptible to being produced in the US.

Market Behavior: A Mystery

The market's continued rise to new highs despite these economic concerns is described as a "mystery."

• Investor Enthusiasm: There is a lot of investor enthusiasm.
• Market Bias: The market "wants to go up," indicating a prevailing upward bias.
• Technical vs. Fundamentals: Despite the underlying economic concerns, market technicals and investor sentiment are driving prices higher.

Conclusion:

While certain aspects of trade agreements, such as increased energy and defense exports, may offer some benefits, Roger Altman believes that the net effect of the current trade policies is negative for the U.S. economy. The long-term consequences of tariffs, including inflation and slower growth, outweigh any potential short-term gains or the promise of future onshoring. The market's current bullish behavior is seen as a disconnect from the underlying economic realities.