President Donald Trump’s tariff plan can give corporations an easy excuse to up prices, according to UBS. Paul Donovan, an economist at the bank, pointed out that durable goods make up an increasingly large share of imports to the U.S. Durable goods is a term used to describe more pricey, longer lasting items like appliances or furniture. That matters because consumers are less likely to remember the prices of these items when they last bought them several years ago, he said, compared with price tags on groceries or other things they see regularly. Thus, companies should be able to raise prices on these bigger items with less awareness or backlash. “Few people remember the price of an imported washing machine bought five years ago (but vividly recall the price of yesterday’s domestic-manufactured Snickers bar),” Donovan wrote to clients. “That makes it easier to pass through trade taxes for durable imports.” Plus, Donovan said all this tariff talk has led to a sharp rise in awareness that goods could be getting taxed at higher rates. This can lead to consumers seeing price increases as “inevitable,” he said — which can then empower companies to raise them. In other words: “Companies might take advantage of that resignation and pass through price increases with impunity,” Donovan said. When Trump instituted tariffs in 2018, Donovan said the levies came amid a period of calm inflation trends that left business concerned consumers would be shocked if they raised prices. Now, with the pandemic inflation story still fresh, the economist said the companies should be able to have more confidence that shoppers wouldn’t be caught off guard if prices rose. The unveiling of Trump’s tariff plan, which calls for broad and steep levies on several key trading partners, has partially driven market action of recent months. While stocks initially cratered after Trump shared his policy, the equity market recovered losses after many of the most severe taxes were put on pause.
