US consumers to bear brunt of tariff hit, Goldman economists say
Goldman Sachs
Group Inc., adding more uncertainty to a Treasury market that has been gripped by shifting bets on the pace of interest rate cuts.
US companies have so far taken the bulk of the hit from Trump's tariffs but the burden will increasingly be passed on to consumers as companies hike prices, economists including Jan Hatzius wrote in a note. Consumers in the US have absorbed an estimated 22% of tariff costs through June, but their share will rise to 67% if the latest tariffs follow the pattern of levies in previous years, they wrote.
Productivity Tool
Zero to Hero in Microsoft Excel: Complete Excel guide
By Metla Sudha Sekhar
View Program
Finance
Introduction to Technical Analysis & Candlestick Theory
By Dinesh Nagpal
View Program
Finance
Financial Literacy i e Lets Crack the Billionaire Code
By CA Rahul Gupta
View Program
Digital Marketing
Digital Marketing Masterclass by Neil Patel
By Neil Patel
View Program
Finance
Technical Analysis Demystified- A Complete Guide to Trading
By Kunal Patel
View Program
Productivity Tool
Excel Essentials to Expert: Your Complete Guide
By Study at home
View Program
Artificial Intelligence
AI For Business Professionals Batch 2
By Ansh Mehra
View Program
The net result: faster inflation. The core personal consumer expenditure index, one of the Federal Reserve's favorite measures of inflation, will hit 3.2% year-on-year in December, according to the Goldman analysts. They said underlying inflation net of tariffs would be 2.4%. The rate was 2.8% in June.
The report adds weight to a widespread view among economists that Trump's sweeping tariffs will fuel inflation at a time when
Fed
policy has become a hot topic not just for bond traders but even for the president himself. Trump has broken convention by publicly calling for the Federal Reserve to cut rates, suggesting Fed Chair Jerome Powell should resign and adding an ally — at least temporarily — to the monetary policy committee.
Bloomberg
Live Events
Bond traders are now looking ahead to Tuesday's inflation data for clues on how fast the Fed can cut. Treasury 10-year yields rose around seven basis points last week, but fell during European trading hours Monday.
Traders are pricing in a more than 80% chance of a rate cut at the Fed's next meeting in September, but the prospect of more easing in the months to come is clouded by the uncertain impact of tariffs on inflation.
Staggered Impact
Most economists consider tariffs to be inflationary, since logic suggests companies will pass the additional costs onto their customers. But the view isn't unanimous — and the debate partly comes down to definitions.
'Inflation, certainly as it's relevant to a central bank setting monetary policy, concerns an ongoing increase in the overall price level,' said Oren Cass, founder and chief economist at American Compass, in a recent episode of Bloomberg's Trumponomics podcast. 'If you choose a specific policy that by design makes a one-time change in the price of certain things, that is not inflation in a sense that you would want a central bank to worry about.'
Goldman's analysis, which suggests businesses have held back from an all-at-once increase in prices, supports the argument that tariffs will ultimately be inflationary. The bank said tariff effects have boosted core PCE by 0.2% so far, with another 0.16% expected in July and an additional 0.5% over the rest of the year.
While American businesses have taken around 64% of the hit from tariffs so far, their share will fall to less than 10% as they pass on more of the costs onto consumers, according to the report.
The analysts added that the impact on US businesses has been mixed — while some have taken a larger share of the tariff hit, domestic producers shielded from competition have raised prices and benefited. Those opportunistic price rises also push up inflation.
Foreign exporters have absorbed an estimated 14% of the cost of tariffs through June, but their share may rise to 25%, Goldman said. The impact on foreign exporters can be gauged from a slight decline in import prices on tariffed goods, they said
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Mint
16 minutes ago
- Mint
IEA lifts global oil supply forecast, signaling bigger surplus ahead
Next Story Giulia Petroni , The Wall Street Journal Global oil markets are poised for a larger surplus than previously expected this year, with supply set to grow more than three times faster than demand, the International Energy Agency said. The IEA raised its estimates for OPEC+ supply growth by 370,000 barrels a day for this year and by 520,000 barrels a day for the next, reflecting a faster-than-anticipated unwinding of voluntary cuts. (File Photo: Reuters) Gift this article Global oil markets are poised for a larger surplus than previously expected this year, with supply set to grow more than three times faster than demand, the International Energy Agency said in its closely watched monthly report. Global oil markets are poised for a larger surplus than previously expected this year, with supply set to grow more than three times faster than demand, the International Energy Agency said in its closely watched monthly report. The Paris-based organization now forecasts oil supply growth of 2.5 million barrels a day this year and 1.9 million the next, from earlier estimates of 2.1 million and 1.3 million barrels a day, respectively. The revision follows OPEC+'s latest bumper output hike, though countries outside of the alliance remain the primary drivers of growth. Supply was largely steady in July, as declines in OPEC+ output were offset by increased production from non-OPEC+ producers. Saudi Arabia's output fell from June's highs, when several Gulf producers boosted exports over fears of supply disruptions in the Strait of Hormuz. The IEA raised its estimates for OPEC+ supply growth by 370,000 barrels a day for this year and by 520,000 barrels a day for the next, reflecting a faster-than-anticipated unwinding of voluntary cuts. The alliance recently agreed to another super-sized hike for September in a push for market share, fueling concerns about a supply glut in the coming months. However, despite the unwinding of nearly 1.4 million barrels a day of cuts on paper from April to July, the IEA said only 640,000 barrels a day of additional crude production actually hit the market. The supply growth forecast for non-OPEC+ producers was trimmed by 10,000 barrels a day to 1.3 million this year, but raised to 1 million barrels a day from 940,000 previously for next year, largely due to higher U.S. output. Wednesday's report comes as Brent crude trades around $66 a barrel, while West Texas Intermediate is at $63 a barrel, as investors await President Trump's meeting with Russian President Vladimir Putin to discuss the war in Ukraine. 'Oil prices have been caught in the crosshairs of fast-changing market dynamics," the IEA said. 'While new sanctions on Russia and Iran threaten to impact trade flows, weaker economic growth is poised to temper demand." Iranian oil supply rebounded from the low levels seen in June following the 12-day conflict with Israel, and U.S. pressure has yet to significantly dent exports, according to the agency. Russian crude supplies remained broadly steady in July, though announced and threatened sanctions could curb output and revenue later this year. The IEA expects Russian production to align with its OPEC+ target, averaging just under 9.4 million barrels a day for the remainder of the year. Meanwhile, global oil demand growth is expected to slow further, largely due to a weaker macroeconomic outlook. The slump is particularly evident in China, India, and Brazil, after June and July data came in weaker than expected, according to the agency. 'The latest data show lackluster demand across the major economies and, with consumer confidence still depressed, a sharp rebound appears remote," it said. Demand is forecast to grow by 685,000 barrels a day this year and by 699,000 barrels a day the next, from previous estimates of 704,000 and 722,000 barrels a day, respectively. The IEA's projections are well below OPEC's. Global oil inventories climbed for the fifth consecutive month in June, hitting a 46-month high of 7.8 million barrels. The increase was fueled by growing volumes of oil at sea, and rising stockpiles of both Chinese crude and U.S. gas liquids, the IEA said. Write to Giulia Petroni at Topics You May Be Interested In Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
Time of India
16 minutes ago
- Time of India
US embeds trackers in AI chip shipments to catch diversions to China
US authorities have secretly placed location tracking devices in targeted shipments of advanced chips they see as being at high risk of illegal diversion to China, according to two people with direct knowledge of the previously unreported law enforcement measures aim to detect AI chips being diverted to destinations which are under US export restrictions, and apply only to select shipments under investigation, the people show the lengths to which the US has gone to enforce its chip export restrictions on China, even as the Trump administration has sought to relax some curbs on Chinese access to advanced American semiconductors. The trackers can help build cases against people and companies who profit from violating US export controls, said the people who declined to be named because of the sensitivity of the issue. Location trackers are a decades-old investigative tool used by US law enforcement agencies to track products subject to export restrictions, such as airplane parts. They have been used to combat the illegal diversion of semiconductors in recent years, one source said. Five other people actively involved in the AI server supply chain say they are aware of the use of the trackers in shipments of servers from manufacturers such as Dell and Super Micro, which include chips from Nvidia and AMD. Those people said the trackers are typically hidden in the packaging of the server shipments. They did not know which parties were involved in installing them and where along the shipping route they were put in. Reuters was not able to determine how often the trackers have been used in chip related investigations or when US authorities started using them to investigate chip smuggling. The US started restricting the sale of advanced chips by Nvidia, AMD and other manufacturers to China in 2022. In one 2024 case described by two of the people involved in the server supply chain, a shipment of Dell servers with Nvidia chips included both large trackers on the shipping boxes and smaller, more discreet devices hidden inside the packaging - and even within the servers themselves. A third person said they had seen images and videos of trackers being removed by other chip resellers from Dell and Super Micro servers. The person said some of the larger trackers were roughly the size of a smartphone. The US Department of Commerce's Bureau of Industry and Security, which oversees export controls and enforcement, is typically involved, and Homeland Security Investigations and the Federal Bureau of Investigation, may take part too, said the sources. The HSI and FBI both declined to comment. The Commerce Department did not respond to requests for comment. The Chinese foreign ministry did not have immediate comment. Super Micro said in a statement that it does not disclose its "security practices and policies in place to protect our worldwide operations, partners, and customers." It declined to comment on any tracking actions by US authorities. Dell said it is "not aware of a US Government initiative to place trackers in its product shipments." Nvidia declined to comment, while AMD did not answer a request for comment. Chip restrictions The United States, which dominates the global AI chip supply chain, has sought to limit exports of chips and other technology to China in recent years to restrain its military modernization. It has also put restrictions on the sale of chips to Russia to undercut war efforts against Ukraine. The White House and both houses of Congress have proposed requiring US chip firms to include location verification technology with their chips to prevent them from being diverted to countries where US export regulations restrict sales. China has slammed the US exports curbs as part of a campaign to suppress its rise and criticized the location tracking proposal. Last month, the country's powerful cyberspace regulator summoned Nvidia to a meeting to express its concerns over the risks of its chips containing "backdoors" that would allow remote access or control, which the company has strongly denied. In January, Reuters reported the US had traced organized AI chip smuggling to China via countries such as Malaysia, Singapore, and the UAE - but it is unclear if tracking devices were involved. The use of trackers by US law enforcement goes back decades. In 1985, Hughes Aircraft shipped equipment subject to US export controls, according to a court decision reviewed by Reuters. Executing a search warrant, the US Customs Service intercepted the crate at a Houston airport and installed a tracking device, the decision noted. US export enforcement agents sometimes install trackers after getting administrative approval. Other times they get a judge to issue a warrant authorizing use of the device, one source said. With a warrant, it is easier to use the information as evidence in a criminal case. A company may be told about the tracker, if they are not a subject of the investigation, and may consent to the government's installation of the trackers, the source added. But the devices can also be installed without their knowledge. People involved in diverting export-controlled chip and server shipments to China said they were aware of the devices. Two of the supply chain sources, who are China-based resellers of export-controlled chips, said they regularly took care to inspect diverted shipments of AI chip servers for the trackers due to the risks of the devices being embedded. An affidavit filed with a U.S Department of Justice complaint regarding the arrests of two Chinese nationals charged with illegally shipping tens of millions of dollars' worth of AI chips to China earlier this month describes one co-conspirator instructing another to check for trackers on Quanta H200 servers, which contain Nvidia chips. It said the English language text was sent by a co-conspirator, whose name was redacted, to one of the defendants, Yang Shiwei . "Pay attention to see if there is a tracker on it, you must look for it carefully," said the person, who went on to call the Trump administration by an obscenity. "Who knows what they will do."
Mint
16 minutes ago
- Mint
The ultimate guide to the Trump tariff fallout: Trade wars, Russian oil, and India-US ties
New Delhi: A fortnight after Donald Trump won the US presidential election in November 2024, Rahul Roy-Chaudhuri, a senior fellow at the International Institute for Strategic Studies, was speaking at a global conference on Trump in Naples, Italy. 'I noticed that the Europeans were very pessimistic, whereas the Indians were optimistic—cautious, but optimistic. They were upbeat about Trump," said Roy-Chaudhuri, a specialist in South Asian affairs, who was presenting a paper on the Indian perspective. Now, days after Trump announced a stiff new tariff regime and secondary sanctions against India, the London-based strategic analyst wonders, 'Did we get that wrong? Were the Europeans right after all?" He's not the only one left bewildered by Trump's measures—although this story is still developing, with a myriad unknowns that could tip the scales in favour of India. Why us, is a common refrain heard among civil servants and businesses in New Delhi these days, although some say India should have seen this coming, and drawn hard lessons from Trump's first term, when he forced India to lower tariffs on US-made Harley Davidson motorcycles and bourbon whisky. Back when Trump first made a bid for the US presidency in 2016, India and Indians leapt to his aid. With the ruling Bharatiya Janata Party champing at the bit to craft a new foreign policy that would eject ideology in favour of trade and business, the moment seemed opportune. Hell, you could even say auspicious. Some in India publicly prayed for Trump's victory with garlands, chants and conch-shells. In the US, meanwhile, influential Indian-origin supporters of his Republican Party swiftly swung into action helping organise glamorous fund raisers and public meetings. Back then, it seemed, India couldn't put a foot wrong as both countries forged closer ties against the backdrop of Chinese belligerence in India's neighbourhood and the Asia-Pacific region. But seven months into his second term, Trump has hiked tariffs on some Indian imports to 25% and imposed secondary sanctions in the form of another 25% tariffs for purchases of sanctioned Russian oil, which are set to kick in on 27 August. Announced in the middle of US-India negotiations on a bilateral trade agreement (BTA) that the two sides expect will take mutual trade to $500 billion by 2030, India called the move 'unfair, unjustified and unreasonable". Mint breaks down the tariff war, the future of bilateral trade, India's (and the world's) energy trade with Russia, the changing landscape of foreign policy, and what could heal the injured Indo-US ties. What went wrong 'There was a mismatch of expectations around the bread and butter issues of the trade agreement," said Pankaj Saran, former deputy national security adviser and ex-ambassador to Russia. 'Even the first time around (the first Trump presidency), we had a difficult experience. This time, we were mindful of past experience and offered a generous package, with a lot of concessions. The Americans admitted they had received it but they were unsure how to handle it internally." Not just Americans and Indians, no one's quite sure how to deal with the most mercurial US presidency in living memory. But the reversal in India-US ties, as India pushed back on American demands to open up its market for agricultural produce and allow genetically modified (GM) products, has been stunning. 'There is no precedent," said Saran. 'Trump's mode of operation is that there is no last word. It is a combination of strategies involving a mix of carrot, stick and public admonition. For him, it seems, outcomes are more important." Who needs Russia more? Both Europe and America continue to buy vital commodities from Russia. America, for instance, continues to import Russian enriched uranium, plutonium, fertilisers and palladium, a key mineral used in catalytic converters in vehicles. And although European Union (EU) imports from Russia have fallen 86% since the first quarter of 2022, when Russia invaded Ukraine, Reuters reported on 6 August that the 27-nation grouping continues to buy Russian oil, nickel, natural gas, fertilizer, iron and steel from Russia. In fact, according to energy trade data tracked by the Centre for Research on Energy and Clean Air, a non-profit think-tank founded in Helsinki, the EU was the world's leading buyer of Russian LNG and piped gas—key to heating up countries with growing ageing populations and harsh winters. Indian purchases were convenient for the US and EU, which bought products refined in India from Russian crude, while global prices were shored up. As Eric Garcetti, who was US ambassador to India under former President Joe Biden, told the Washington-based Council on Foreign Relations in May 2024, 'They [India] bought Russian oil because we wanted someone to buy Russian oil at a price cap—that was not a violation or anything, that was actually the design of the policy, because as a commodity, we did not want the price of oil to go up. They fulfilled that." Trump's political priorities Trump wants to address three overarching domestic problems by the tariffs—trade balance, budget deficit and his fiscal problem, said Mohandas Pai, chairman of Aarin Capital. 'He wants to reduce the trade deficit with India ($45.8 bn in 2024) by cutting imports. But the US has very little to export except high-tech products, defence equipment and aircraft. Trump seems to have forgotten the 450 Boeing aircraft orders India has already placed," Pai said. 'Tariffs don't work' There are several dimensions to the current political problems that the Trump administration is attempting to solve, and pivoting to just one, that is restricting imports, will not solve problems that are large and generic in nature, said Neelkanth Mishra, chief economist at Axis Bank. 'The Americans have forgotten that tariffs don't work. If anyone thinks that the profit pools of exporters to the US or American firms importing goods are so large that $500-600 billion of tariffs can be absorbed, then they are completely mistaken. These are efficient markets, and therefore have thin margins." Figures released by the non-partisan Congressional Budget Office, analysed by Fox News, showed that the US budget deficit ballooned by $109 billion to $1.6 trillion in the first 10 months of FY25 compared with the same period a year ago, despite the tariffs. Spending rose by $372 billion over this period, led by expenditure on benefits, including for medical aid for America's ageing population. National debt surged $60 billion to $37 trillion. Inflation is coming Cost escalations are set to be passed on to American consumers. According to research by The Budget Lab, an independent think tank of Yale University, published on 7 August, American consumers are set to bear an overall average effective tariff rate of 18.6%, the highest since 1933. After taking into account changes in consumer spending patterns, influenced by factors like income and prices, the average tariff rate will be 17.7%, the highest since 1934. This is not good news for Indian exports either. The tariffs disproportionately impact labour-intensive clothing and textiles, with US consumers facing 39% higher shoe prices and 37% higher apparel prices over the next two years. Not surprisingly, Trump has spared two sectors from high tariffs, pharmaceuticals and smartphones, unwilling to tinker with cheap Indian-made generic drugs and mobile phones prices. The prize for peace Things could turn around very quickly for India if a planned 15-August summit between Trump and Russian president Vladimir Putin manages to strike a peace deal—an outcome that should scotch at a stroke the raison d'être for secondary sanctions. It is not known if Ukrainian president Volodymyr Zelensky, who has European backing, will attend. Indian Prime Minister Narendra Modi and Zelensky had a conversation on Monday, following which the Ukrainian leader said on X, 'I had a long conversation with the Prime Minister of India. We discussed in detail all important issues—both of our bilateral cooperation and the overall diplomatic situation. I am grateful to the Prime Minister for his warm words of support for our people. It is important that India is supporting our peace efforts and shares the position that everything concerning Ukraine must be decided with Ukraine's participation. Other formats will not deliver results." To be sure, even if the peace deal goes through, which would be a massive feather in Trump's world peace-building cap and Nobel peace prize aspirations, it is not clear if Washington would withdraw the 25% tariffs. The 'superimposition' shock Analysts say signs of Trump's tariff obsession have long been strewn around global trade channels. He began calling India the 'tariff king" in his first presidency and, continuing to riff on the theme, made clear in the hustings last year that he will stop countries from selling goods on the cheap in America, a key pledge that pleased his core MAGA (Make America Great Again) constituency. Rather, it is the non-trade stuff, chiefly the way Trump handled the aftermath of this year's India-Pakistan conflict, that came as a shock—an intrusion that Saran calls 'the superimposition of the political aspect". This was marked by Trump's repeated claims to have helped end the conflict, denied by New Delhi, which views Kashmir mediation as a red line, and his hosting the Pakistan army chief, Gen. Asim Munir, at the White House. The man later issued outrageous nuclear threats from American soil. 'There's no doubt that Pakistan has come up in the political relationship (with America)," said Saran in comments made before Munir's nuclear threats. 'Trump probably found the India-Pakistan conflict to be a geo-political surprise, and he is convinced about the American role in ending it. The difference between the Indian and Pakistani approach to this was sharp. The disagreements began with trade, and political aspects were superimposed on it." White House spokeswoman Anna Kelly said Trump hosted Munir after he called for the president to be nominated for the Nobel Peace Prize. According to Roy-Chaudhuri of IISS, New Delhi may have 'mismanaged massaging his (Trump's) ego". How to heal With India seen by much of the world as key to addressing the negative impact of a fragmented world described by some experts as a fallout of 'deglobalization," its relationship with the US will be keenly watched. For ties to heal, some suggest looking at some of the domestic economic areas that have emerged as irritants. 'Politicians, like markets, tend to be forward-looking," said Mishra, asked if tariffs could spur domestic reforms. 'Consensus needs an external pressure to allow the government to go through meaningful reforms, in agriculture and GM crops for instance. We've been reluctant to change. Why not change now? In manufacturing, we should be looking at domestic demand. The assumption everyone makes is that manufacturing is chiefly for exports—that is wrong. Export competitiveness is important for better productivity, but exports as a source of end-demand are unlikely to be large enough." To be sure, introducing such reforms in India won't be easy. New Delhi, after all, chose to walk out of the Doha Round of trade talks in 2008 rather than give in to American pressure on agriculture. China supported the Indian position against the US then, and something similar may be happening this time around too, with four of the Brics Plus grouping founders— Brazil, Russia, India and China—reportedly eyeing a response to tariffs. Trump is deeply suspicious of Brics, viewing it as anti-American, and this has emerged as another sticking point in India-US ties. But the Russian ambassador to India told a recent meeting on Brics, organised by the India Foundation, more than once that 'de-dollarization (finding an alternative to the global currency of trade) was never a Brics proposal". Pai recommends keeping the temperature down. 'India and the US are joined at the hips when it comes to technology. As many as 25 major US tech companies have Indian-origin CEOs," said Pai, whose Aarin Capital is an investor in technology-intensive businesses. 'It's a temporary set-back. In India, there's a lot of pride; we are not deal-driven." A test ahead 'Trump's Presidency is a work in progress," said Saran. 'You have to play with the cards you are dealt. We have to find our own equilibrium with President Trump, and be careful not to make matters worse. Indian diplomacy will be strongly tested in the coming years, with flashes from the Cold War years, now fuelled by terrorism, threatening to cloud what promised to be a new era of growth-fuelled development. Equally, with a mercurial US president, things could swing right back to a more predictable and respectful relationship. But even amid the current uncertainty, Indian diplomats can draw satisfaction from the fact that an increasingly multipolar world sees India as a shining example of economic progress. And that's something even Trump cannot ignore.
