People will shop at a supermarket in Manhattan Borough in New York City on February 20, 2025.
Charlie Tribrorow | AFP | Getty Images
According to Gregory Daco, chief economist at Ey-Parthenon, consumers are sure to face higher sticker prices as businesses prepare to pass the rising costs to buyers from tariffs.
In an EY survey of 4,000 executives, nearly half said they were willing to pass two-thirds of their additional costs from tariffs to their customers. More than three in ten participants were willing to go a step further and give shoppers more than 90% of their additional costs, polls found.
Observations from executives came when President Donald Trump’s 25% tariffs in Canada and Mexico came into effect Tuesday, resulting in a 10% obligation on imports from China.
target CEO Brian Cornell recently said tariffs on Mexican goods are likely to raise prices for agricultural products.
Dako told CNBC.
The tariffs on the Economist Baseline Estimation Project have a “significant shock” that reduces US gross domestic product by 0.6%, with China assuming a 20% obligation and a global average of 3% tariffs.
But “our first baseline was that tariffs actually took place later,” Dako said.
Even if the Trump administration’s tariffs last only in the short term and are lifted quickly, uncertainty continues to erode business trust. Prices cannot move at the same pace.
“Today’s businesses don’t care if tariffs come tomorrow or in a week. They’re trying to (and) prepare (and) prepare (and) prepare (and) prepare (and) prepare (and) prepare (and) prepare (and) through ways such as increasing inventory and aiming for different supply chains and alternatives,” Daco said.
“But doing that is costly and in itself is inflation. Uncertainty thwarts economic activity,” he added.
Although certain target tariffs are “very painful at the sector level,” Dako said, the effects take longer to filter to consumers. He added that automobile, construction and steel producers are likely to have stocks currently on hand before increasing consumer costs.
“So, consumers don’t necessarily see the full impact overnight, but they’ll see car prices rise very quickly. They build fridges, houses and make sure there’s something else going on,” Dako said.
He predicts that higher price levels will remain sticky, even if tariffs are lifted rapidly.
“It’s true that tariffs could be pulled back…. That doesn’t mean there’s nothing negative,” Dako said.
