As businesses brace for the implementation of new tariffs, consumers can expect to see a rise in prices at the checkout. Gregory Daco, chief economist at EY-Parthenon, reported that nearly half of the executives surveyed in an EY study are ready to pass on two-thirds of the additional costs incurred by these tariffs to consumers.

Survey Insights on Cost Pass-Through

The survey of 4,000 executives revealed significant willingness to transfer costs to the end consumer, with more than 30% indicating they would pass over 90% of the increased expenses resulting from tariffs.

Impact of Recent Tariffs

The economic landscape is shifting as President Donald Trump’s administration enacted 25% tariffs on goods from Canada and Mexico, alongside a 10% duty on imports from China. Target’s CEO, Brian Cornell, has indicated that these tariffs are expected to cause a surge in produce prices.

Economic Forecast and Business Confidence

Daco indicated that the current wave of tariffs has been implemented quicker than expected, suggesting that these tariffs could lead to a reduction in U.S. gross domestic product (GDP) by 0.6%. This estimation is based on projections of 20% duties on Chinese imports and an average of 3% on other global imports.

Despite the possibility of these tariffs being temporary, uncertainty will likely continue to dampen business confidence, impacting economic activities. Daco noted that businesses are already preparing for tariffs by building inventory and exploring alternative supply chains, actions that inherently raise costs.

Sector-Specific Effects and Consumer Experience

While targeted tariffs can significantly impact certain sectors, the effects may take time to filter down to consumers. Industries such as automotive, construction, and steel may see gradual price increases as existing inventory depletes. Daco emphasized that consumers can expect a rapid rise in the prices of items like vehicles, home appliances, and construction materials.

Long-Term Price Levels

Even in scenarios where tariffs are rescinded quickly, price levels are expected to remain “sticky” or resistant to decrease. Daco remarked, “It’s true that tariffs could be pulled back…. That does not mean that there’s no negative,” highlighting the enduring impact of these economic changes.