In recent years, tariffs have been at the center of heated Washington debate. The reasons countries use tariffs is to increase production, investment and employment so that real wages (taking into account any inflation) rise. It is a departure from the tariff cutting free trade agreements that saw many industries move offshore.
Critics claim that tariffs are a “hidden sales tax” passed on to consumers in the form of higher prices. But in the wake of the 2018 “Trump tariffs,” America’s consumers haven’t experienced noticeable price increases. That’s because tariffs don’t operate like a sales tax. They’re not simply slapped onto retail prices. And if anything, the inflation consumers have in recent years has occurred in non-tariffed purchases such as housing, energy, food, and insurance.
Tariffs Are Not a Sales Tax
A common misconception is that tariffs work like a sales tax, directly raising the price of consumer goods. In reality, tariffs are levied on imports when they reach the U.S. border. That means tariffs first impact the foreign producer or the importer. They are the ones who decide whether to “absorb” this cost—or pass it down the supply chain. Unlike sales taxes, which appear at the cash register, tariffs are imposed at the Port of Los Angeles, for example, and then managed at various stages of the supply chain. This means the final price tag doesn’t always reflect the tariff as clearly as many would assume.
Why Didn’t You See a Price Hike?
Here are 10 key reasons why consumers haven’t seen the predicted price increases:
1. Foreign Vendors Absorbed Costs
Foreign suppliers, eager to maintain their foothold in the U.S. market, often absorbed part of the tariff costs. Especially in competitive sectors such as electronics or furniture, suppliers in China reduced their prices to stay competitive. That shielded U.S. consumers from the full impact of the tariffs.
2. Exchange Rate Fluctuations Worked in America’s Favor
Tariff impacts were softened by exchange rate movements. When the U.S. dollar strengthened, foreign goods grew cheaper. That offset some of the price increases that would have otherwise occurred due to the tariffs.
3. Cost Sharing Along the Supply Chain
In complex supply chains, tariff costs are spread across multiple points. Importers, wholesalers, and retailers all absorb portions of the cost. That prevents a dramatic price increase at the checkout counter.
4. Substitution of Inputs
Many manufacturers responded to tariffs by switching to alternative, non-tariffed materials or inputs. For example, tariffs on certain metals led some companies to use domestic steel or alternative materials, preventing steep price hikes on end products.
5. Increased Domestic Production to Meet Demand
Tariffs can lead to a boost in domestic production as American manufacturers ramp up to meet demand. As these businesses grow and achieve economies of scale, their per-unit costs decrease, helping to keep prices stable. For example, domestic steel production increased after tariffs were imposed on imports, helping to offset price increases.
6. Long-term Contracts
Many companies sign long-term agreements with suppliers that set prices for months or even years, allowing them to avoid immediate price hikes due to tariffs. These contracts gave businesses time to adjust their strategies before any cost increases reached retailers.
7. Cross-Subsidization
Large companies with diverse product lines often spread the cost of tariffs across their entire range of goods. They may raise prices slightly on other non-tariffed products to offset the higher costs of imported items, meaning consumers won’t notice a big jump in the price of the tariffed goods themselves.
8. Price Sensitivity and Competition
In markets where consumers are highly sensitive to price changes, businesses may be reluctant to pass the full cost of a tariff onto the buyer. Instead, they will absorb the increased cost in order to avoid losing customers. This is especially true in competitive industries such as electronics or clothing.
9. Inventory Stockpiling Before Tariffs Hit
Many businesses stockpiled goods before the tariffs went into effect, allowing them to continue selling at pre-tariff prices. By the time their stock ran out, these companies often had found alternative suppliers or ways to reduce costs.
10. ‘Shrinkflation’ and Other Cost-Cutting Measures
Some companies responded to tariffs by subtly adjusting their products—reducing the size or quantity while keeping the price the same (a tactic known as “shrinkflation”). This allowed them to absorb the tariff cost without raising the sticker price.
The Real Culprit Behind Recent Price Hikes: Non-Goods Inflation
While tariffs were blamed for impending price hikes, the truth is that much of the inflation consumers have felt over the past three years has come from non-goods categories, particularly services.
1. Housing and Shelter Costs
Rents have surged, accounting for a large chunk of recent inflation. Housing costs have jumped up nearly 24% since 2020, driven by a combination of housing shortages and rising demand.
2. Healthcare and Insurance
The rising cost of healthcare services, prescription drugs, and insurance premiums has significantly contributed to non-goods inflation—and greatly affected consumers’ wallets.
3. Energy Prices
Fluctuations in energy prices—particularly gasoline and utilities—have had a major impact on overall inflation. Global events, including the Russian invasion of Ukraine, sent oil prices soaring. These higher energy costs have reverberated throughout the global economy.
4. Education and Childcare
Education and childcare costs have continued to rise steadily, placing additional financial pressure on families. These sectors are largely unaffected by tariffs but have been major drivers of inflation.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
Consumers Haven’t Noticed a Price Hike from Tariffs…and Tariffs Aren’t a Sales Tax
In recent years, tariffs have been at the center of heated Washington debate. The reasons countries use tariffs is to increase production, investment and employment so that real wages (taking into account any inflation) rise. It is a departure from the tariff cutting free trade agreements that saw many industries move offshore.
Critics claim that tariffs are a “hidden sales tax” passed on to consumers in the form of higher prices. But in the wake of the 2018 “Trump tariffs,” America’s consumers haven’t experienced noticeable price increases. That’s because tariffs don’t operate like a sales tax. They’re not simply slapped onto retail prices. And if anything, the inflation consumers have in recent years has occurred in non-tariffed purchases such as housing, energy, food, and insurance.
Tariffs Are Not a Sales Tax
A common misconception is that tariffs work like a sales tax, directly raising the price of consumer goods. In reality, tariffs are levied on imports when they reach the U.S. border. That means tariffs first impact the foreign producer or the importer. They are the ones who decide whether to “absorb” this cost—or pass it down the supply chain. Unlike sales taxes, which appear at the cash register, tariffs are imposed at the Port of Los Angeles, for example, and then managed at various stages of the supply chain. This means the final price tag doesn’t always reflect the tariff as clearly as many would assume.
Why Didn’t You See a Price Hike?
Here are 10 key reasons why consumers haven’t seen the predicted price increases:
1. Foreign Vendors Absorbed Costs
Foreign suppliers, eager to maintain their foothold in the U.S. market, often absorbed part of the tariff costs. Especially in competitive sectors such as electronics or furniture, suppliers in China reduced their prices to stay competitive. That shielded U.S. consumers from the full impact of the tariffs.
2. Exchange Rate Fluctuations Worked in America’s Favor
Tariff impacts were softened by exchange rate movements. When the U.S. dollar strengthened, foreign goods grew cheaper. That offset some of the price increases that would have otherwise occurred due to the tariffs.
3. Cost Sharing Along the Supply Chain
In complex supply chains, tariff costs are spread across multiple points. Importers, wholesalers, and retailers all absorb portions of the cost. That prevents a dramatic price increase at the checkout counter.
4. Substitution of Inputs
Many manufacturers responded to tariffs by switching to alternative, non-tariffed materials or inputs. For example, tariffs on certain metals led some companies to use domestic steel or alternative materials, preventing steep price hikes on end products.
5. Increased Domestic Production to Meet Demand
Tariffs can lead to a boost in domestic production as American manufacturers ramp up to meet demand. As these businesses grow and achieve economies of scale, their per-unit costs decrease, helping to keep prices stable. For example, domestic steel production increased after tariffs were imposed on imports, helping to offset price increases.
6. Long-term Contracts
Many companies sign long-term agreements with suppliers that set prices for months or even years, allowing them to avoid immediate price hikes due to tariffs. These contracts gave businesses time to adjust their strategies before any cost increases reached retailers.
7. Cross-Subsidization
Large companies with diverse product lines often spread the cost of tariffs across their entire range of goods. They may raise prices slightly on other non-tariffed products to offset the higher costs of imported items, meaning consumers won’t notice a big jump in the price of the tariffed goods themselves.
8. Price Sensitivity and Competition
In markets where consumers are highly sensitive to price changes, businesses may be reluctant to pass the full cost of a tariff onto the buyer. Instead, they will absorb the increased cost in order to avoid losing customers. This is especially true in competitive industries such as electronics or clothing.
9. Inventory Stockpiling Before Tariffs Hit
Many businesses stockpiled goods before the tariffs went into effect, allowing them to continue selling at pre-tariff prices. By the time their stock ran out, these companies often had found alternative suppliers or ways to reduce costs.
10. ‘Shrinkflation’ and Other Cost-Cutting Measures
Some companies responded to tariffs by subtly adjusting their products—reducing the size or quantity while keeping the price the same (a tactic known as “shrinkflation”). This allowed them to absorb the tariff cost without raising the sticker price.
The Real Culprit Behind Recent Price Hikes: Non-Goods Inflation
While tariffs were blamed for impending price hikes, the truth is that much of the inflation consumers have felt over the past three years has come from non-goods categories, particularly services.
1. Housing and Shelter Costs
Rents have surged, accounting for a large chunk of recent inflation. Housing costs have jumped up nearly 24% since 2020, driven by a combination of housing shortages and rising demand.
2. Healthcare and Insurance
The rising cost of healthcare services, prescription drugs, and insurance premiums has significantly contributed to non-goods inflation—and greatly affected consumers’ wallets.
3. Energy Prices
Fluctuations in energy prices—particularly gasoline and utilities—have had a major impact on overall inflation. Global events, including the Russian invasion of Ukraine, sent oil prices soaring. These higher energy costs have reverberated throughout the global economy.
4. Education and Childcare
Education and childcare costs have continued to rise steadily, placing additional financial pressure on families. These sectors are largely unaffected by tariffs but have been major drivers of inflation.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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