Businesses Expect to Pass Along 50% of Tariffs, Survey Finds
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Business expect to pass through roughly half of tariff-related expenses to U.S. consumers still reeling from the pandemic-era inflation surge, according to a new survey from the Federal Reserve Bank of Atlanta.
The findings show that many businesses anticipate they鈥檒l need to take a different approach from 2018, when they passed through nearly all tariff-related costs to their customers, Atlanta Fed researchers wrote in a blog post published June 5.
鈥淥ur results suggest many firms believe their customers are price-sensitive enough this time around (perhaps owing to the recent inflationary surge that isn鈥檛 too far in the rearview mirror) that they cannot pass through the entire cost increase without reducing demand,鈥 wrote Atlanta Fed researchers Kevin Foster, Aaron Jalca and Brent Meyer.
Businesses were asked to estimate what portion of higher tariff costs they would be able to pass along to customers based on current levels of demand. Those businesses that reported stronger demand levels said they expect to pass through a greater share of costs than businesses facing weaker sales, according to the survey, which was conducted April 7 through April 18.
During the survey period, President Donald Trump had put in place a 10% baseline tariff for almost all countries and a 25% tariff on all foreign-made autos and auto parts. China and the European Union faced significantly higher tariffs at that time.
On average, businesses told the Atlanta Fed researchers they鈥檇 expect to be able to pass through 51.1% of a 10% increase in costs without harming current demand levels. In a scenario with a 25% increase in costs, firms said they could likely pass on 47.3% of the tariffs.
Business owners have had to grapple with several iterations of Trump鈥檚 tariffs since he announced them, with the president granting extensions on some components and lowering levies for several countries temporarily while negotiations take place. U.S. courts added yet another layer of uncertainty last week, first blocking and then reinstating the bulk of the levies during the appeals process. The lack of clarity over the final state of the tariffs and how they鈥檒l affect prices and growth has Fed officials keeping interest rates stable while they wait for more data.
The tariffs have yet to show up clearly in official data for prices or the labor market, with inflation moderating and employment remaining solid. But both consumers and business leaders are anxious about how the levies will affect their bottom line.
Economic activity declined in recent weeks amid the uncertainty, according to the Fed鈥檚 Beige Book survey released June 4. That report found that businesses planning to increase prices because of tariffs expect to do so within three months. A few regions expected these increases to be 鈥渟trong, significant or substantial.鈥
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