Brian Jacobsen, Chief Economist at Annex Wealth Management, joins TheStreet to discuss how businesses might be impacted by President Trump's new tariffs.
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00:00I don't think that tariffs are necessarily going to lead to faster inflation, mainly because
00:06when the Fed thinks about inflation, it's at the consumer level. It is more likely that businesses
00:14are either going to have to eat the cost of that because of a reduced inability to pass on
00:19those cost increases to consumers, or we are likely to see exchange rates adjust,
00:26just like we have seen the Chinese currency go down in value by about 4% since September.
00:32Effectively, that's pricing in maybe a 10% tariff. So between exchange rate changes and then
00:39profit margin compression, I think those are some shock absorbers before we would see consumer price
00:45inflation. So I actually think tariffs are a bigger threat to the equity markets in terms
00:51of profit margins, as opposed to the fixed income markets in terms of inflationary pressures.
00:58But what makes you so sure that companies won't be, won't have a willingness to pass on
01:05the tariff prices on to consumers? We have seen, you know, in recent history,
01:10a great willingness to pass on everything to the consumer.
01:14That is correct. And I think that is one of the risks here is that I could be wrong about that,
01:18about the ability of them to not pass on the increases. It's just that in this environment,
01:25I believe consumers are becoming choosier, searching out discounts. We've already heard that
01:30from a few of the reporters. If we look at a company like, let's say Macy's, just as an example,
01:35how they talked about consumers are still engaged, but they're being choosier and looking for
01:40discounts. I think that we're also seeing that we have seen that last quarter with the difference
01:46in behaviors and the stock price of say Walmart versus Target. The ability to push price higher
01:54on consumers is not what it used to be. I think that coming out of COVID, there is this collective
02:00belief amongst businesses that, hey, we can all push prices up together. When you have tariffs,
02:06I think that maybe you're getting a little bit of that inflation fatigue on the consumer part.
02:11And it's a harder story for people to, or businesses to claim that they can pass on
02:16those prices. Now I could be wrong about that, but it does seem like profit margins
02:22are historically elevated and there is some room for those to come in.