The economy's tariff cost burden

New inflation data confirms anecdotes from Corporate America: U.S. importers are bearing the brunt of tariffs so far — costs that look set to be passed along to consumers.Why it matters: The extent to which higher trade-related costs fall more heavily on overseas suppliers, American companies or U.S. consumers will define the Trump-era economy in the years ahead.Driving the news: The Producer Price Index, a measure of prices paid to wholesalers, came in fiery hot, rising 0.9% in July — the biggest gain in three years. For context, economists expected a mere 0.2% monthly increase, following a flat reading in June.The bulk of that increase stemmed from a gauge of profit margins included in the report's measure of service sector costs.Within services, margins at wholesalers and retailers rose 2%, with stronger margins for machinery and equipment wholesalers leading the surge.Between the lines: President Trump has imposed some of the highest tariffs in a century on foreign goods. The U.S. government collected almost $30 billion in tariff-related revenue in July — a new monthly record — according to the Treasury Department.Someone is paying. The tariffs are raising costs for businesses in a way that — at least in July — pushed wholesalers to hike prices to cushion the blow to profits.The data raises "questions about the risk of stronger tariff passthrough looking forward," Evercore ISI economist Marco Casiraghi wrote in a client note. "If the scope for compressing margins in the wholesale and distribution sector remains limited, higher import prices would eventually be passed on to consumers."What to watch: "In some industries, the share that's paid by the consumer will probably be rising over time," Chicago Fed president Austan Goolsbee told reporters Wednesday."We talked to a major apparel manufacturer who said that they're planning price increases for the tariffs that have already been put in place," Goolsbee added.But other industries are "holding their breath to figure out where things are going to settle before incorporating them into price increases," he said.The intrigue: Earlier this week, the Consumer Price Index indicated more muted tariff-related price increases than in June."I think given the amount of revenue the tariffs ... have raised — and yet the lack of any pass-through to the end user, I think is stunning," Joe Lavorgna, an economist who serves as the senior counsel to Treasury Secretary Scott Bessent, told Axios after the report was released.What to watch: The White House is betting that tariff-related price hikes will fall on exporters, in the form of them accepting lower prices for their goods — or that businesses will accept a hit to their margins.Trump this week called on Goldman Sachs to fire its economist after it issued a report predicting that while U.S. businesses have initially absorbed the tariffs, the impact will ultimately shift to consumers.

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The economy's tariff cost burden

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