By Michael S. Derby
NEW YORK -The majority of businesses in the New York Federal Reserve’s district said they passed on at least some of President Donald Trump’s tariffs in the form of higher prices last month, as firms flagged considerable confusion and uncertainty in navigating the surge in import taxes, a report from the bank released on Wednesday said.
As of early May, “most businesses passed on at least some of the higher tariffs to their customers, with nearly a third of manufacturers and about 45% of service firms fully passing along all tariff-induced cost increases by raising their prices,” the New York Fed report said.
Some three quarters of both types of firms passed along at least some form of tariff-related price increases.
The New York Fed noted its survey captured conditions between May 2 and May 9, when Trump’s import taxes on China surged to 145%. The president later retreated and cut the levy to 30% and is now facing court challenges that if successful could negate much of his effort to push up import taxes to historically high levels in a bid to bring more manufacturing activity back to the U.S.
The latest round of tariffs has brought a doubling on aluminum and steel import taxes.
At the time of the survey, factory firms estimated that their tariff level was 35% while service firms said it was 26%. The manufacturing firms said the price increase in their tariffed goods was 20% while service firms reported a 15% price increase for customers.
“While these figures are quite close to the increases in the firms’ average tariff rates, firms’ costs of tariffed goods may not have increased by as much as the tariffs in part because importers may have switched towards suppliers in other countries or in the United States,” the report said. It noted foreign producers may have lowered their prices to offset the tariff surge.
The survey also found “a significant share of businesses” said they had increased prices on goods and services not affected by tariffs.
Trump and White House officials have argued that foreigners pay tariffs, a contention rejected by most economists. There have been big questions among investors, economists and policymakers on how much of the shifting tariff agenda will be passed along in the form of higher prices.
Most economists and Fed officials expect the tariffs to drive up inflation while lowering growth and employment this year but there are ongoing questions whether the rise will be a one-shot deal or something more persistent. Some in the Fed have argued a one-time price increase is the sort of thing monetary policy can look through, while sustained inflation gains would merit some sort of response.
The New York Fed survey also showed respondents were very unsure how things would play out.
“Businesses expressed considerable uncertainty about the future path of tariffs,” the New York Fed said. At the same time, factory and service firms struggled to understand what level of tariffs were affecting them, and “many businesses expressed difficulty making decisions and determining the appropriate pricing strategies under such heightened uncertainty.”
(Reporting by Michael S. Derby; Editing by Andrea Ricci)
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