Since the first weeks of President Donald Trump\u2019s second term, when the president signaled a wholesale reimagining of the international trade system on a scale not seen in decades, mainstream economists have warned that prices would surge.<\/p>\n
The mantra, repeated by everyone from mainstream economists to factions of the GOP<\/a>, has been clear: A tariff is a tax on consumers. Businesses said the same, with three -quarters of importers in a recent New York Fed study declaring they planned to pass on<\/a> some tariff costs to customers.\u00a0<\/p>\n But halfway into the year and well into the most consequential reshuffling of trade in half a century, tariff-fueled inflation is missing in action.\u00a0<\/p>\n The tariffs are certainly in place: The Treasury so far has collected a record-setting $100 billion<\/a> in customs duties, and is on track to pull in $300 billion this year. The tariffs are paid by U.S. importers<\/a>\u2014think Walmart<\/a> and other retailers\u2014when goods cross the border into the U.S. It takes some time to work their way into the system, but eventually higher prices get passed onto consumers. Those higher prices directly influence the overall price levels in inflation measures.\u00a0\u00a0<\/p>\n Except there\u2019s a mystery, wrapped in an enigma, and coated in a puzzle.\u00a0One place tariffs aren\u2019t showing up? In the inflation numbers.\u00a0<\/p>\n For four months, official inflation readings from the Bureau of Labor Statistics have come in under expectations, with the latest inflation reading a relatively modest 2.4%<\/a>. The president\u2019s Council of Economic Advisers (CEA) this week released a brief<\/a> arguing that import prices have actually been falling.\u00a0<\/p>\n Why doesn\u2019t the data show a tariff hit? Here\u2019s what leading economists told Fortune.\u00a0<\/p>\n It\u2019s too soon<\/p>\n Though tariffs have been discussed for months, they haven\u2019t actually been in place for that long.<\/p>\n \u201cRegarding the impact of tariffs on prices, the timeframe used by the CEA is way too short to draw any definitive conclusions,\u201d said the fiscally conservative National Taxpayers Union said in a critique<\/a> on the study, which looked at prices through May. \u201cTrump\u2019s 10% nonreciprocal tariffs were only imposed in April.\u201d<\/p>\n Tariffs on steel and aluminum<\/a> went into effect in March and increased in June, while Chinese imports have been subject to a 30% tax since March; dozens more \u201creciprocal\u201d tariffs, initially announced in early April, have now been postponed.\u00a0<\/p>\n Meanwhile, official government price data takes time to collect and release. As of mid-July, the most recent data for the Consumer Price Index<\/a> and Personal Consumption Expenditures deflator, covers May.<\/a>\u00a0<\/p>\n Big businesses are stockpiling<\/p>\n Immediately after tariffs were announced, importers rushed to bring in goods before they were subject to a higher rate. Businesses brought in so many goods, with no corresponding sales, that it briefly flipped the U.S.\u2019 GDP into negative territory<\/a>. (In economist math, imports count as a negative to GDP.)\u00a0<\/p>\n That surge means that businesses could still be largely selling goods brought in under pre-tariff prices.\u00a0<\/p>\n \u201cBusinesses stockpiled inventory, and presumably haven\u2019t had to raise prices on goods because they\u2019re sitting on the shelf. Eventually they will, and once they start to raise prices it\u2019ll start impacting consumers,\u201d said Eric Winograd, chief U.S. economist at AllianceBernstein, to explain this theory.<\/p>\n No one knows how much to raise prices<\/p>\n Uncertainty, in a word, is \u201cthe most important reason\u201d the hard data doesn\u2019t yet show tariff impact, according to Eugenio Aleman, chief economist at Raymond James.\u00a0<\/p>\n \u201cBusiness owners price their goods at replacement cost. If they have to buy the same good in the future, they have to increase the price [charged to the customer] if the price of the replacement is higher,\u201d he told Fortune. The problem, though, is uncertainty. \u201cEverybody knows the prices that firms will pay for replacement goods will be higher, but nobody knows by how much. That uncertainty is keeping many firms from repricing their goods.\u201d<\/p>\n It\u2019s coming out of profits instead<\/p>\n Businesses, particularly small businesses, could be choosing to eat the cost of tariffs for the time being. Unlike large businesses, they have a smaller client base and could be reluctant to hike prices, Aleman said.\u00a0<\/p>\n \u201cMaybe small firms are eating some large portion of the tariffs. Why? Because they can\u2019t afford to lose clients,\u201d he said. One potential data point indicating this possibility is recent Commerce Department figures showing growth in proprietors\u2019 income\u2014a proxy for small businesses\u2014flatlining in May<\/a>. Aleman stressed that more than one month of data would be needed to determine if this is the case.\u00a0<\/p>\n Recent Bank of America<\/a> research shows the amount of tariffs paid by small businesses in May nearly doubled from 2022<\/a> levels. \u201cSmall businesses may be, in some ways, more susceptible to tariff pressures than larger businesses, given their access to capital is more limited,\u201d the note read.\u00a0<\/p>\n They\u2019re scared of Trump<\/p>\n An added factor is the bully pulpit of Truth Social, which Trump has wielded freely at even the largest retailer thinking of hiking costs.<\/p>\n \u201cIf the president sees significant pass-through of tariffs via prices, you\u2019ll see a lot more public policy, probably via Twitter<\/a>,\u201d Jeff Klingelhofer, a managing director at Aristotle Pacific<\/a>, told Fortune.\u00a0<\/p>\n Customers won\u2019t pay higher costs<\/p>\n Klingelhofer previously suggested that companies would take the brunt of the tariff impact because they\u2019re the only ones who could afford to, with consumers being \u201ctapped out\u201d after years of high inflation. Former Federal Reserve economist Claudia Sahm also noted that\u00a0 companies today are less quick to hike prices now than they were during pandemic inflation, when Americans were flush with cash and eager to spend it.\u00a0<\/p>\n In 2021 and 2022, \u201cconsumers up and down the income distribution, had some cash, and there were a lot of corporate earnings calls saying \u2018We\u2019re passing these [costs] through,\u2019 and the consumer could kind of handle it,\u201d she told Fortune.\u00a0<\/p>\n Three years later, Americans have spent all the excess savings<\/a> accumulated during Covid, and businesses \u201crealize if they increase prices dramatically, they could be losing customers,\u201d she said. \u201cThere is more hesitation. There is some raising of prices, but not the exuberance\u201d of the pandemic.<\/p>\n Inflation might never come<\/p>\n