Key Takeaways
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- Effective tariff burden is lower than headline rates as firms exploit exemptions, shift sourcing, and use bonded/FTZ inventory strategies.
- Inflation ran ~3% in September—elevated but below forecasts—with companies absorbing 30–50%+ of tariff costs via margins.
- Tariff revenues underwhelm: implied effective average ~12.5% vs headline >17%; manufacturing “re-shoring” remains limited.
- Consumer spending and growth stayed resilient, though hiring and pricing pass-through risks linger into 2026.
What Happened?
Economists’ spring predictions of a tariff-driven inflation spike and recession haven’t materialized. Annual inflation is about 3% and the economy continues to expand. Actual tariff intake is running below Treasury projections, implying many goods sidestepped the highest levies. Companies diversified away from China toward Vietnam/Mexico/Turkey, pre-built inventories, and used free-trade zones and bonded warehouses to blunt costs. Where tariffs were paid, large corporate margins helped firms absorb a sizable share rather than fully passing costs to consumers—evident in categories like autos, where prices rose modestly despite double-digit import duties.
Why It Matters?
The near-term macro hit from tariffs has been muted by corporate margin buffers, supply-chain pivots, and partial pass-through. That supports consumer demand and earnings quality in retail, autos, and logistics while tempering the inflation impulse. However, weaker-than-advertised tariff revenue and the absence of a broad manufacturing boom challenge arguments that levies catalyze re-industrialization. For investors, this mix favors firms with pricing power, flexible sourcing, and balance-sheet room to absorb costs—but underscores medium-term risks if margins normalize, labor markets soften, or suppliers push through higher prices.
What’s Next?
Watch the trajectory of pass-through: as stockpiles normalize and contracts reset, more tariff costs may reach consumers, elongating the inflation tail. Monitor import mix shifts (country/HS-code) and utilization of FTZs/bonded storage to gauge effective rates. Track category-level pricing (autos, apparel, furniture) versus margin trends—especially among mid-cap retailers and OEMs with less cushion. Policy-wise, tariff adjustments and enforcement around de-minimis and exemptions will steer effective burdens; any manufacturing incentives or energy/power constraints will shape the longer-run re-shoring calculus.
