Prices often don’t return to their previous levels even after the original cause of the increase goes away.
That is something to keep in mind in the aftermath of the Supreme Court’s ruling on Friday that struck down the Trump administration’s tariffs.
A prime example is the current price level of goods that are sensitive to tariffs, trade and global supply in general. They are still well above pre-pandemic levels.
We are now well past the pandemic, and supply chains have largely healed. But the behavioral damage from inflation has already been done.
No matter what economists call these forces—reshoring, menu costs, greedflation, margin protection or precautionary pricing tied to a higher risk premium—the result is the same: Prices are far more rigid on the way down than on the way up.
We expect the same dynamic to play out with goods that were subject to higher tariffs.
What we know by now is that Americans have absorbed higher prices fairly well, as spending has remained strong. That resilience by consumers leaves businesses with much less incentive to cut prices and sacrifice margins.
Even if tariff refunds eventually make their way onto corporate balance sheets—after what will most likely be a long and messy process—the operational costs tied to tariff uncertainty have already been paid.
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While we believe this decision will benefit U.S. importers and manufacturers, we don’t expect pricing pressure on the average American households to go away anytime soon.
So if firms receive refunds, what will they do with them?
Our estimate is that the large public firms will buy back stock to bolster share prices and reinvest the rest.
Small and midsize firms will probably repair balance sheets that were damaged over the past year.
We are not holding our breath on the passing through of refunds to the public through price cuts.
