How businesses may feel the Trump tariffs impact

The Street

Brian Jacobsen, Chief Economist at Annex Wealth Management, joins TheStreet to discuss how businesses might be impacted by President Trump's new tariffs.

Transcript

00:00I don't think that tariffs are necessarily going to lead to faster inflation, mainly because

00:06when the Fed thinks about inflation, it's at the consumer level. It is more likely that businesses

00:14are either going to have to eat the cost of that because of a reduced inability to pass on

00:19those cost increases to consumers, or we are likely to see exchange rates adjust,

00:26just like we have seen the Chinese currency go down in value by about 4% since September.

00:32Effectively, that's pricing in maybe a 10% tariff. So between exchange rate changes and then

00:39profit margin compression, I think those are some shock absorbers before we would see consumer price

00:45inflation. So I actually think tariffs are a bigger threat to the equity markets in terms

00:51of profit margins, as opposed to the fixed income markets in terms of inflationary pressures.

00:58But what makes you so sure that companies won't be, won't have a willingness to pass on

01:05the tariff prices on to consumers? We have seen, you know, in recent history,

01:10a great willingness to pass on everything to the consumer.

01:14That is correct. And I think that is one of the risks here is that I could be wrong about that,

01:18about the ability of them to not pass on the increases. It's just that in this environment,

01:25I believe consumers are becoming choosier, searching out discounts. We've already heard that

01:30from a few of the reporters. If we look at a company like, let's say Macy's, just as an example,

01:35how they talked about consumers are still engaged, but they're being choosier and looking for

01:40discounts. I think that we're also seeing that we have seen that last quarter with the difference

01:46in behaviors and the stock price of say Walmart versus Target. The ability to push price higher

01:54on consumers is not what it used to be. I think that coming out of COVID, there is this collective

02:00belief amongst businesses that, hey, we can all push prices up together. When you have tariffs,

02:06I think that maybe you're getting a little bit of that inflation fatigue on the consumer part.

02:11And it's a harder story for people to, or businesses to claim that they can pass on

02:16those prices. Now I could be wrong about that, but it does seem like profit margins

02:22are historically elevated and there is some room for those to come in.

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