The Term-1 effect of deflation created by tariff policy is resurfacing in Term-2 even with larger tariff impacts across the network of global manufacturing exports. [DATA SOURCE]
In essence, there is little to no end result in price increases in the final price of consumer goods (Consumer Price Index). In fact, there is a slight deflationary aspect on CPI data from imported durable goods. The lower price of arriving imported durable goods is effectively putting downward pressure on US consumer prices. This is identical to the Term-1 result. A pattern is repeating. [PCE personal consumption expenditure / CPI consumer price index]
[Source – WH Council of Economic Advisors]
It sounds counterintuitive, but tariffs do not impact the final price of goods to USA consumers; there are just too many factors, too many elements within the Total Cost of Goods (TCG) within supply chain. Global energy prices, domestic energy prices, currency evaluations and fluctuations, state/govt subsidies to manufacturers, labor negotiations and production profit offsets are only a few of the components.
Additionally, and this is where U.S. consumers do not get a fulsome explanation from corporate media analysts, the tariff rate is applied to the ‘cost’ the exporter pays, not the final consumer price. A pair of jeans from China may be sold to the import company for $5 per pair. A 30% tariff raises the price of the jeans by $1.50 to $6.50. The tariff rate does not apply to the retail price of $50 paid by the consumer.
CEA ANALYSIS – The Council of Economic Advisers (CEA), after decomposing the Personal Consumption Expenditure Price Index into imported and domestic components, found that the prices of imported goods have not only fallen this year, but also declined faster than overall goods prices since February. These findings contradict claims that tariffs or tariff-fears would lead to an acceleration of inflation.
More commonly referred to as PCE or PCEPI, the Personal Consumption Expenditure Price Index is an inflation gauge watched closely by policymakers and financial markets. Overall goods prices in the PCE index have increased by 0.4 percent from December 2024 through May 2025, which corresponds to a 1 percent annualized rate.
Meanwhile, the imported component of PCE goods prices fell by 0.1 percent from December 2024 through May 2025. CEA’s directional findings using this method of analyzing the PCE are consistent across core goods (excluding food and energy), durables (which last for at least three years), and nondurables. The import contribution to inflation includes both the direct impact of imported final goods for consumption and indirect effects of imported intermediate inputs.
Similar analysis for the widely used Consumer Price Index (CPI) shows that imported goods have deflated 0.8 percent while overall goods prices have remained constant. There are a number of differences between PCE and CPI inflation, including scope of products included and weighting methodologies, so finding a similar pattern for CPI highlights the robustness of the results. (read more, pdf)
So this is a good thing, yes? Which is why media won’t cover any explanation?
There are two reasons why the corporate fake news media won’t cover this:
1. Their insane hatred of President Trump won’t allow them to cover this good news.
2. They’re too stupid to understand the simple truths laid out by Sundance in this post.
Simple Economics. To my knowledge, not even required in school anymore.
4% of public have economic literacy. Explain it like I’m 5. Professor Sundance paints the picture with jeans. Parroting the point but until big pharma, big ag, etc are removed from media advertising; the propaganda press will carry their water.
When you listen to Leftist “Leaders” like AOC speak about anything Trump, they spin his “benefit to Americans” as fabricated lies that benefit no one, or almost no one – but the rich. (Listen to her spin the “no tax on tips” as a lie). These stories are the talking points the avg Left American eventually spews – therefore if Trump is no benefit to their life yet continues to boast about how Americans live their life better – they see nothing but a BS performance, and the lack of credibility is given to EVERYTHING Trump says or does. It’s tiring… all they have to do is open their fridge and look at their bank accounts to see the benefit. If they aren’t giving Credit to Trump for a better daily life, who actually gets the credit? Is it Luck?
Logic and reason mean nothing to liberals. If their lives are better they will say it’s in spite of Trump’s policies.
You…listen to her? Lol. Sorry. I have no stomach for that….Gucala….
Besides stupid. The globalist groupthink is off the charts
Even the many economists got the latest Econ news forecasts way off. 1/77 got things right last weeks on jobs report.
The fake narrative on tariffs is so tiresome
If you know how it works, tell your colleagues and associates the truth
The Econ news is supporting it
Because they are invested in China and don’t want this.
MAGA
We will import deflation as these countries devalue or subsidize, and at the same time induce competition, a sure fire pricing pressure tool, within the USA among all the new businesses opening.
Yet another reason President Trump speaks of how wealthy we will be in short order.
who is we? If retail prices are not affected thats good.
But “we” as it applies to you and me doesn’t mean we as in you and me.
If it did I would expect to be “wealthy🧐
Were in the money, were in the money just like the song said in the 20’s.
We, America.
Whether you take advantage of opportunities, and or choices you make, is up to you. That alone determines your personal wealth.
Retail prices will fall. Food prices will fall. Shopping options will greatly expand.
Allowed to proceed uninhibited, yes things will be outstanding.
IF, big IF, we are intelligent enough to 1.) Decrease our cost of living, while 2.) Increasing our standard of living, and constantly working to eliminate Waste, Fraud and Corruption, THEN, we’ll all enjoy the Golden Age! All 3 must be achieved, regardless of how much vitriol and hatred the Democrats spew out!
I own a business that resells products using the distributor model. The products come from many different countries including China. Some of my suppliers are increasing their cost in a blanket manor. Some are acting more prudent. Most knew this was coming and ordered prior to January 20th. It seems to me many are using this opportunity to raise prices even though they are not paying more for the product.
I think this is an opportunist attitude and will not serve them long term.
Opportunistic for some suppliers. If they had real competition, their competitors would be poised to eat their lunch and gain their market share for delivering a better value.
Over time, manufacturers will look at total production costs, and adjust where the goods are supplied from. We are not yet at the point where consumers will see benefit from wholesalers shifting production; it takes time to retool a factory and change logistics. We have to work through all existing contracts first.
By next year, anyone who hasn’t shifted towards domestic (USA) production, or to lower tariffed nations, is just putting themselves at a disadvantage to those who do.
There’s always the Ford Motors of the world who will talk a good game, then gamble that the next (Vance?) administration may not be serious about continuing Trump’s tariffs, and will choose to wait it out. They will eat the tariffs (bottom line decline = stock losses) or pass it on to the consumer (higher consumer prices push demand to other comparable goods). It’s our job as consumer to make sure those customers suffer by not buying their goods.
I am seeing that now. Many had trouble during Covid. Some products are easer to onshore. Others are not so easy due to the amount of tooling.
Not many in my industry have the deep pockets like Ford and will look at what is on the ground now.
But like all industries they listen too closely to the mainstream media propaganda and not to their customers.
If I understand SD correctly, the tariffs will become permanent regardless of what the next administration is, because our government is addicted to spending and will spend to the level of monies available with never a consideration of scaling it back. It’s like a person fresh to the workforce. They spend to the level of a new raise almost immediately and cannot countenance they idea of controlling that spending.
Sounds a lot like gas prices. Trouble in the Gulf, prices go up immediately. We know that the gas in the pump was derived from oil that was purchased at a lower price. Producers and sellers taking advantage of the headlines to raise prices.
Exactly
Yup! Always quick to go up and slow to go down.
They’ll be forced to reduce retail prices soon
In the end the consumer/end user gets a vote. There are few products consumers need as opposed to want that cannot be sourced here in the U.S. or from a low tariff country.
I had a very similar post but it appears to have been removed. But this is what I am seeing as well.
I was thinking of SD’s cost analysis in reverse. All the goods that we manufactured here and sold abroad are subject to the same economic mechanics, ie, other nations’ tariffs and non-tariffs impositions upon our goods forced us to eat the cost, that is, increase the base cost of operation while not increasing the buyer’s cost at all. This was unfairly and cruelly forced upon us by the elite scum.
Our own leadership ( and I am thinking of that parasitic clown family Bush – but it is all of them, except Trump) imposed these anti-competitive costs upon us for, at least, forty years or more.
And, the pol’s made a lot of money doing this and other underhanded things.
The good news is this, however:
We are so lean, mean, enraged, and used to busting our backs doing hardwork that the competition around the world have no idea what is coming.
No idea – NONE!
In economic terms what President Trump has accomplished here is “rent capture.” The foreign exporters and to a lesser extent domestic resellers are absorbing the tariff cost, so the money that would’ve gone into their profits is now going into the treasury.
In the first term, China cut its export prices. So President Trump siphoned billions of dollars directly out of China, including state owned enterprises.
I will also add the “substitution effect.” Consumers will purchase lower priced/similar products where it’s easy to do so and those items may be domestically produced or from a country that has reached a lower tariff threshold.
Additionally, they devalued their currency which insulated us from the cost of tariffs.
It all comes down to the retailers attitude towards gross profit margin. Some have the mentality that GPM is the be all and end all.
In the example above, if the company increases retail cost to $51.50 they have the same profit per pair of jeans. But their GPM is now lower — 87.4% vs 90%. To maintain the same 90% GPM they would increase the cost to $65 (again 30%, and now making a profit of $58.50 per pair of jeans) .
And there are definitely CFOs that treat GPM as the single most important metric. I think part of what is driving the assumption of increased cost is the assumption that CFOs are not going to tolerate lower GPM.
I personally think GPM is a completely pointless metric, but I’m an engineer not a CPA
https://rumble.com/v6vvu8a-kari-lake-has-uncovered-insane-corruption-in-rotten-state-run-media.html
You don’t say. Corruption in the media? Say it ain’t so. And by the way, water is wet.
I understand the points made but be careful with too much forecasting. The dollar value is key to a lot of these calculations and currently it is getting a little weaker. If the dollar strengthens; expect zero impact of tariffs. If the dollar weakens; expect some inflationary impact.
Currency games in international trade are common and usually cost US goods access to many markets. The tariffs help to root out these games and give the US a chance to even the playing field.
Always watch the dollar value.
This is interesting as I have been looking at some items online and the company has added a $4.00 customs charge.
Because of this, I am not buying from them.
Indeed, they are exposing this cost to you, and asking you to pay it, instead of absorbing the cost so that you don’t see it. Your reaction is probably typical. So, the policy is short-sighted.
It is altogether predicable that this would happen.
In fact….I bet many companies that are NOT impacted by tariffs will do this in order to squeeze more $$$ from it’s customers 🙂
<…the company has added a $4.00 customs charge.>
Tell them it’s not your custom to pay extra charges 🙂
I’ll bet that company never showed you its own mark up charges on an item, now did it?
Wonder why? <smiles>
The real danger this time is the debt bomb and the tariff hit which may cause a worldwide recession ripple which could escalate quickly into something far worse that the usual monetary crisis. The globalists have built themselves a very fragile glass house with their stupid green new deal and they really have no escape clause built. While tariff policy is great for the US for raising money, The US as the leader does have a responsibility to also be very prudent in allowing these ignorant socialists some escape from their folly or the alternative could be quite catastrophic.
Huh????
We have to destroy the village to save it??
The socialists can escape their folly by backing away from their socialism which is consuming their resources.
That’s the point you seem to be missing. Yes they need to back away but like the Titanic it requires a slow down and not an abrupt hit. A muslim revolution in the UK in fifty years is probably inevitable , but one in two years would be very bad.
The sooner the better on the revolution in UK.
They need to run them out now not later
The muslims would probably win. Be careful of what you wish for.
I’m not even disputing Sundance’s points. I agree with completely. As a matter of fact, they support what I am saying that the tariffs fall on the producer. After WW2 and we destroyed everybody’s factories and stole all of their scientists it was inevitable that the world would require protection from US manufacturers to get back on their feet. I have no problem with the US using tariffs to get back manufacturing now. It just needs to be measured to ensure stability. I am not confident in that.
–“After WW2 and we destroyed everybody’s factories and stole all of their scientists it was inevitable that the world would require protection from US manufacturers to get back on their feet.”–
We(only the US?) destroyed everyone’s factories(there was not a factory standing in any country except the US?) and stole all of their scientists(yup, every single scientist in the world was forced to come to America and work for us!). We also destroyed all our allies’ (at the time) factories, really? Oh please!
Mmm…A wee bit of hyperbole, maybe? On your part or mine? <smiles>
And you seemed to skip over the fact that many countries absolutely depended on US manufacturers to get back on their feet before they “…require[d} protection from US manufacturers…”.
I do agree with your point of US tariffs generally “need to be measured to ensure stability”, but there are also times when those measurements need to be on a sliding scale to ensure that the path to that stability or equalization is established. And after 80 years of “protection from US manufacturers”, I think the time is more than ripe and overdue for “protection of US manufacturers”.
Just my 2 cents.
What folks need to keep in mind is that: “every country charges tariffs (a form of taxes).” They are factors in the cost of everything that is imported and exported, by everyone everywhere. Nothing news about that.
We have traditionally paid very high tariffs. What is changing now is that we are (finally!) beginning to charge more reasonable tariff amounts.
(That “schedule of tariffs” poster that Trump was once shown holding up proposed counter-tariffs equal to 50% of what we have been paying! Some of those amounts are huge. Why did it take this long to address the problem?)
CON gress – prostitutes.
Oars!!! With a Wh….
Economists use computer ensembles (models) to forecast big picture economic outcomes and in this case using the tariffs as a control variable. But just like climate models the outputs depend on, or are conditioned on, certain parameters and their relationship to input variables. In other words, one can achieve certain outputs by changing the inputs.
As I understand it, when forecasting future national debt the OMB doesn’t include the revenue from tariffs. This would, of course, make the deficit appear larger than it should be. If you grow the economy – increase revenue – the debt to income ratio changes to a more favorable number.
I’m not an economist, but I did stay at a Holiday Inn Express once!
And most economic models use STATIC analysis, which neglects to even TRY to forecast how economic behavior changes when economic incentives change.
This is the correct answer.
When tariffs are presented in the Economics classroom, the simple supply/demand model does show that tariffs are, indeed, inflationary.
However, before turning to the chalkboard (do they even use those anymore?), the professor will always mumble: “holding all other variables constant” and then draw the curves. In the real world, as expressed by SD above, all other variables are NOT constant.
Rush used to say the very same thing, specifically in regard to a luxury tax of 10% (IIRC) that the democrats imposed on luxury yachts during the Clinton era. They ignored the fact that their tax would depress the yacht industry simply because buyers would not pay the extra cost.
Exactly what the Congressional Budget Office uses.
Now this is real numbers. I majored in Finance. Many universities offered Finance and Economics in business school. My university only offered Finance through the business school. Economics was offered through Arts and Sciences or Social Sciences schools. My business school was kind of snobs about that. Professors and Deans would say, “Finance is informed by economics, but uses real numbers.” Highlighting how subjective and fleeting economic theory is, often with no mooring to reality. The economics presented by the CEA in this report must have some Finance major influences in it.
Is there anything Trump can’t do?
So far, he needs a pilot to fly the plane…
But what he can’t do, he hires the best and the brightest to cover that gap. That is the way all successful people operate.
Find the Epstein files????
Could somebody shove this report into Jerome Powell’s…..face?
Thanks!
I can think of another Jerome Powell place to shove it.
I just finished watching local news [piping in national content] state that ‘so called’ reciprocal tariffs would take effect Aug 1.
As has been stated here by so many, just when I think I can’t hate the MSM any more, it turns out that, yes indeed, I can have an even lower opinion of them !
Big news as tariffs revenues QUADRUPLE from May to May.
Financial Times: US tariff receipts surge in Donald Trump’s trade war
Figures show record $24.2bn raised from the levies in May but highlight potential for distortion to global trade flows
https://www.ft.com/content/08af277f-13d5-4294-ab25-1866b5233abe
*** “US tariff revenues surged almost fourfold from a year earlier to a record $24.2bn in May, *** the first full month in which President Donald Trump’s 10 per cent global tariff was in effect.”
The stoopidity never ends.
For those of us that argue with “those people” on social media, letters to the editor, etc… This is probably a good article to keep handy.
Former corporate business exec, degree in Economics. Agree the inflationary impact of tariffs on FINISHED goods is somewhat overstated. Largely depends on the type of products. Clothing, plastic ware, etc, has high markup, so absorbing tariffs often has little to no price influence. Higher priced items like autos will see prices go up, not the same amount as the tariff, but they will rise.
More problems come from tariffs on raw material imports. Steel, aluminum, all ultimately impact cost of goods…even with U.S. made alternatives.
President Trump just announced a 50% tariff would be placed on copper. THAT will be very impactful, especially in electrical products. Copper for manufacturing wiring and electrical components is mined domestically but a large amount is imported. When copper mines in Chile, Peru and even Canada have issues, costs soar.
Heavy tariffs on raw materials will cause prices to rise. Please be careful Mr. President.
What’s wrong with American copper? The better paying blue collar jobs go way up.
But not just for miners.
A whole side industry of machinists, welders, electricians, mechanics, etc. pops up to support it.
Mining our own stuff has compound benefits.
Several of our existing copper mines need to be re-opened, and Trump recently annnounced that his administration will be working on that.
“It sounds counterintuitive, but tariffs do not impact the final price of goods to USA consumers; there are just too many factors, too many elements within the Total Cost of Goods (TCG) within supply chain.”
What we’re watching in real time is a massive transfer of wealth from the globalist oligarchs who control world trade to American working-class families!
All the factors Sundance speaks of; energy prices, currency fluctuations, subsidies, labor negotiations and profit offsets, make the paradigm sound more complicated than it is.
The bottom line is that the global economic system that says it needs a ten-fold price increase from the $5 jeans the sweatshop sells to the $50 dollars the American blue-collar worker buys can easily be squeezed to a nine-fold or eight-fold increase…and the system still works, but the filthy rich just get a little less filthy.
So where does all that Trump tariff money go?
It goes into the U.S. Treasury and that’s what is making Trump’s tax cuts possible!
So the America factory mechanic can take home a little more cash and his waitress wife can pocket the tips she no longer has to pay taxes on.
Just like that Swami with the crystal ball, Trump saw it all from the beginning…and now he’s making it happen!
I would still like to know why grocery prices are NOT coming down. The prices for goods are ridiculous. Also, many companies have implemented shrinkflation, so not only are you paying more but paying more for less product. President Trump seems to think grocery prices are decreasing but someone needs to tell him that’s just not true.
Bro….. he still swears the warp speed poison saved millions of lives.
I have seen prices come down…. but you must understand Walton family has the monopoly on grocery pricing and when they decide to jack up prices for the Democrat cause, (making GOP look bad to get Democrats installed and further steal billions via EBT from hardworking taxpayers) they do go up and every other retailer follows. Walton’s have a Great Racket on the EBT.
I’m going to agree only because in my area it seems nothing goes down. In reality I think it’s the corporations are the one’s profiting from us/Trump. I went to buy coffee last week and the same jug, cost $2 more. Greedy oligarchs!
A 30% tariff raises the price of the jeans by $1.50 to $6.50. The tariff rate does not apply to the retail price of $50 paid by the consumer.
If the importer/retailer wants to maintain his original profit, then does he not increase his retail price by $1.50?
Nope. His profit margin goes from 1000% to 675%. He’ll gladly eat the difference in margin and keep the price to the retail seller the same just to retain the access. Space in stores is limited and competition in apparel is FIERCE.
The overseas manufacturer might reduce their price by 1.50 so the Jeans do not go up in cost to the importer/retailer.
Deflation of the covid policies inflation.
Create massive inflation with covid policies and spending then “solve” it too become the hero.
It’s like lighting your house on fire then putting it out before the fire department arrives and expecting to hailed as a hero.
Well, Sundance, there you go again…..undermining their lies and hysteria with facts and logical reasoning.
See how you are??
oxoxoxo
Quick – tell Powell !
Fabulous MAGA!
More Winnamins , please!!!
So how do you get the companies to lower the prices of goods. As you said a price of jeans now cost $6.50 for the company but they are still charging the prices as if they were $12 or $15. Until people actually pay less money in the stores they’re not going to believe that these tariffs are actually saving money because it is not saving THEM money. The companies are happy, but the people are no better off.
Tariffs, like every tax, takes money out of the economy. Less money means deflation. Of course that assumes everything else is equal, which you can’t assume.
How much does a Tariff costs me on home grown Produce?
As long as President Trump is in office, we could have zero inflation and ten percent wage growth and the corrupt MSM will report that a recession is imminent.
Some tabular data.
https://www.bls.gov/news.release/ximpim.nr0.htm
You’re the man, Sundance. I fully understand this which is why I preach the same to all those who will listen. Thank you.
“the tariff rate is applied to the ‘cost’ the exporter pays, not the final consumer price.”
This is simply not true. I’m in the heavy machinery business. We are getting tariffs on imported machines and we are absolutely passing it on to the customer.
And parts – that were subject to a 5% tariff – were increased across the board – and passed on to the customer. Imported and domestic parts.
We are cutting prices because we make our own machinery in the USA. How are you going to compete with us?
I’m talking about where tariffs are going… that’s the topic.
And our company, we are cutting prices on products not raising, I repeat how are you going to compete with that?
Sundance, are you sure you are using the word “fulsome” correctly in your posts?
I had the same thought when I first read the article!
Here is how I see a tariff on a pair of jeans.
A pair of jeans has been coming from an overseas manufacturer and cost the retailer $5.00 per pair, and the retailer prices it at $50.00. Now a 30% tariff is applied to the cost of the pair of jeans. This 30% or $1.50 is owed to the US government. The seller can add this to the cost of the jeans, and the buyer then has to pay $6.50 for the jeans. $5.00 for the jeans and $1.50 to the US Government that the seller has to pay. But if the seller does that, the buyer might decide to deal with another seller who is paying the $1.50 direct to the US Government and only charging the US retailer buying from them $5.00 per pair of jeans. This seller’s government is rebating this seller $1.50 for each pair of jeans. So, this seller is still making his profit margin because his government is paying the tariff.
The US buyer doesn’t pay more so he still charges His customer $50.00 so no inflation in US.
Now the US retailer buys 10 million pairs of these jeans. The US Government is paid $15 million in tariffs. 10 million pairs of jeans X $1.50 tariff on each pair. The US Government can now reduce taxes by $15 million dollars because they are getting $15 million in tariffs revenue they weren’t getting before. Multiply that by billions of items bought by US consumers each year.
Bingo, we have the Big Beautiful Bill.
I’ve tried to explain tariffs to people, because MSM can’t be bothered to explain. Tariffs are only levied on the country of origin selling price, not the US purchase price; and are not levied on transportation costs.
I can understand the analysis Sundance offers for a pair of jeans.
I suspect that a 25% tariff on cars made in the Far East might have a more noticeable impact.
The example of he jeans may not be so representative of most goods. How many goods have a markup of that magnitude from wholesale import of $6.50 to $50? If there is some deflation for now, this could be just pure luck for Trump’s tariff guessers…other factors, as the article astutely notes, may have enabled many goods’ import prices to fall and have thereby offset the tariffs at their current rate for now. Also, what about the possibility that some retailers are willing to make a cut in their prices to offset any effect from the tariffs for now? (This would then mean they are lowering their profit margins…could be a threat to their business if forced to continue this?) What if there’s been some drop in demand for many goods that may have also pressured retailers to drop prices? It’s still way too early in the game to fairly-accurately assess the effects of this tariff game.