Trump’s Tariffs Haven’t Really Hit Yet, But They Will

KPMG, one of the big four accounting firms, wrote today that “Our internal estimates show that the effective tariff rate was only about 9-10 percent in May and likely moved up in June. Stockpiling ahead of tariffs, a reshuffling of supply chains and the leverage of bonded warehouses in Free Trade Zone helped mitigate the timing and blow of tariffs. Recent announced tariffs suggest we could easily see a doubling of the effective tariff rate between now and the end of the year, even with mitigation efforts.”

This was echoed by Goldman Sachs, as Seeking Alpha wrote that “the actual effective tariff rate has only risen by 7.4 percentage points so far this year, falling short of Goldman’s 9 percentage point estimate, but Goldman’s economists identified two key factors behind this discrepancy: implementation lags and frontloading effects. Payment delays through the automated customs system allow importers to defer tariff payments for up to 1.5 months.” Despite these quirks delaying the full tariff impact to date, Goldman wrote that “We expect the effective tariff rate implied by Customs data to converge to our estimate over time, as tariffs announced remain in place and the effects of frontloading and implementation lags fade.” The famed vampire squid expects a 14-percentage point increase in the effective tariff rate by the end of 2025, and a 17-point increase through 2027.

This is why business investment has been chilled. Businesses front-ran the tariffs in the first quarter and warped the net exports figure to such a historic degree it technically turned GDP negative, and then as logic would follow, they pulled back their spending in the second quarter after stocking up on inventory. It takes a while for tariffs to actually get passed down to the consumer, the same way it took a while for the pandemic supply shock to hit prices, but it eventually did. KPMG notes that “Tariffs can take six to eighteen months to work their way through the economy into profit margins and prices. We are only at the beginning of that process, with a lot more tariffs in the pipeline.” GM saw its net income decline 35 percent in the second quarter despite beating analyst expectations, demonstrating how even though the effects of tariff impacts are uneven, they are hitting some firms right now, with more to follow the path that GM is walking.

As the Yale Budget Lab calculated this week, Trump’s agreements with Japan and the EU on a 15 percent tariff have set the highest tariff rate for America since 1934. The Smoot-Hawley tariffs that helped deepen the Great Depression are a legitimate comparison for Trump’s protectionist regime, and all the data we have on it so far shows that its effects have yet to really sink their teeth into the economy, chilling business investment everywhere outside of AI’s massive capex spending spree. But due to all the known laws of basic economics that everyone but Donald Trump understands, it’s inevitable that his historic tax hikes on Americans will find their way into more and more products as we get deeper into this shambolic trade war.