Insights from our CEO: Tariffs Top of Mind

  • by itradmin - Wed, 04/11/2018 - 16:30
Brian Beaulieu

As an Economic Speaker for ITR Economics, tariffs seem to be the number one issue that folks want to discuss. The issue was elevated recently with the Administration considering another round of tariffs on Chinese goods (this time totaling $100 billion) because it decided that the Chinese response to the prior desire of $40 billion in tariffs against China was unfair.

Escalating this issue to cover more and more goods for more dollars is increasing the odds that:

  • Unintended consequences will arise
  • Price increases in the US will become more widespread
  • US profitability will be less than it otherwise would be
  • The stock market will downward “correct” some more

None of the above would be good for the US economy in 2018 or 2019. We can likely carry the burden of the negative consequences from the tariffs if the consumer carries the economy higher with retail sales in business cycle ascent. Therein lies the rub. There is a risk that retail sales will grow at a slowing pace later this year as savings decline and the disposable income spurt from the tax cuts becomes “normal” in a short period of time.

Most of the managers I spoke with recently say they will pass through the price increases they can, but they expect that profit margin erosion will occur. This is normal when you are forced to pay higher prices because of the basic laws of supply and demand. What we must do as managers is devise strategies and tactics for passing along the price increases to the consumer as fast as we can. Failure to do so will ensure that the rest of 2018 and beyond will be a period of revenue ascent and bottom-line decline, i.e., a period of disappointing profit growth.

Brian Beaulieu