Key Concepts
- Tariffs: Taxes imposed on imported goods.
- Incoterms: Internationally standardized trade terms defining responsibilities of buyers and sellers (e.g., who pays for shipping, insurance, duties).
- Importer of Record: The entity responsible for ensuring imported goods comply with all laws and regulations, including paying duties and taxes.
- CPI (Consumer Price Index): A measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
- Lagging Indicator: An economic metric that changes after an economy has already begun to follow a particular pattern or trend.
- Supply Chain Shift: Alterations in the network of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer.
- AIPA Tariffs: Tariffs related to Section 301 of the Trade Act of 1974, often referred to as "AIPA" tariffs.
US Tariffs: Impact on Consumers, Economy, and Supply Chains
This discussion centers on the impact of US tariffs, particularly those implemented during the Trump administration, as analyzed by the New York Federal Reserve and Columbia University, with insights from Naen Jones, a former general counsel specializing in logistics. The core finding is that the burden of these tariffs is overwhelmingly borne by US consumers and companies, contrary to initial expectations.
Burden of Tariffs: Who Pays?
The New York Federal Reserve and Columbia University data indicates that 90% of the cost associated with tariffs and taxes on imported goods falls on US consumers and companies. This contradicts earlier assertions from Trump administration officials who suggested exporters or manufacturers would absorb some of the increased costs. Naen Jones, with extensive experience in logistics, confirms this finding, stating, “I’m not surprised by the numbers at all.”
Jones explains that the US importer of record is primarily responsible for paying duties, taxes, and tariffs when goods arrive at US ports. She argues it’s unlikely foreign exporters would unilaterally disrupt long-term supply contracts (typically 3-5 years) to offer lower prices, given the limited flexibility built into those agreements regarding currency fluctuations or fuel surcharges. While reimbursement for duties by the foreign shipper is possible, it’s “in very rare instances” negotiated into the Incoterms or contract terms.
Reconciling Tariff Costs with Falling Inflation
The discussion addresses the apparent contradiction between rising tariff costs and the recent decline in the inflation rate to 2.4%. Jones posits that the higher tariff costs are not immediately reflected in consumer prices for several reasons:
- Cost Absorption by Importers: US importers may be initially absorbing the increased costs, preventing immediate price increases on store shelves. This suggests a lag time before consumers experience the full impact of tariffs.
- Pre-Tariff Inventory: Many US sellers likely had substantial inventory purchased before the tariffs were implemented. This “pre-tariff inventory” is currently being sold, masking the impact of the new tariffs. Once this inventory is depleted, a potential “bump” in consumer prices is anticipated.
- CPI Stability: The stability of the CPI (Consumer Price Index) suggests importers are currently not passing the higher costs onto consumers.
Broader Economic Impact & Supply Chain Shifts
The long-term economic consequences of tariffs extend beyond immediate consumer prices. Even if the AIPA tariffs were deemed unconstitutional by the Supreme Court, Jones argues there would still be a year’s worth of tariffed goods to be sold, continuing the economic impact.
The most significant long-term effect is expected to be a shift in the supply chain. Previously stable trade relationships between exporters and the US may be disrupted as exporters seek more predictable markets. Jones explains, “Now new relationships might be have been formed where they’re sending their goods to somebody else another country…maybe there’s less dynamic…it’s a lot more stable.” This shift could lead to a restructuring of global trade patterns, with exporters prioritizing stability over the US market.
Incoterms and Responsibility
The discussion highlights the importance of Incoterms in determining who bears the financial responsibility for various aspects of international shipping, including duties and taxes. The standard practice, according to Jones, is for the foreign seller to deliver the goods “on the boat or on the plane,” transferring the responsibility for import costs to the US importer.
Notable Quote
“The influx to the US Treasury is coming from Americans…The importer or is it the consumer? And I think by the CPI index being stable, we’re seeing that the importer is not necessarily um embedding its higher costs into the consumer prices yet.” – Naen Jones, commenting on where the financial burden of tariffs ultimately lands.
Conclusion
The analysis reveals that US tariffs are primarily paid for by American businesses and consumers, despite initial expectations to the contrary. While the immediate impact on consumer prices may be masked by cost absorption and pre-tariff inventory, a longer-term economic impact is anticipated through supply chain shifts and potential price increases. The discussion underscores the complex interplay between trade policy, economic indicators, and global supply chain dynamics. The lasting effects of these tariffs will likely be a restructuring of international trade relationships and a re-evaluation of the US as a stable trading partner.
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