A just-published report examined a number of topic global investment issues and updated our investment recommendations. Two hot topics this week were: the independence of the U.S. Federal Reserve and whether Chair Powell would be fired; and the issue of who really pays for higher U.S. tariffs. The answer to the second question is clear: U.S. import tariffs are taxes paid by American (or American based) companies or consumers.
Importers to the U.S. may need to lower their prices if American businesses balk at having to absorb all of the increase in tariffs. However, so far, most surveys (including some from the Fed) suggest that a good portion of the increase will be passed on to U.S. end-users, i.e. consumers. Net: some combination of lower corporate profits or higher U.S. inflation looms.
A key consideration regarding the historically huge increase in tariffs is whether it will derail the U.S. (and global) economic expansion. Our analyses concluded that U.S. growth will cool in the second half of 2025, but should reaccelerate above its potential rate next year. The latest tariff proposals are not enough to offset the positive growth impact of fiscal stimulus in 2026.
