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American Focus > Blog > Economy > Some Hidden Costs of Tariffs
Economy

Some Hidden Costs of Tariffs

Last updated: May 9, 2025 6:05 am
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Some Hidden Costs of Tariffs
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The Wall Street Journal has been on a roll with its insightful coverage of tariffs ever since the announcement of the so-called “Liberation Day” tariffs. A recent piece titled “Retail Giants Manage to Keep a Lid on Prices but Warn It Can’t Last,” published on April 29, 2025, sheds light on crucial dynamics at play in the retail sector. Authors Sarah Nassauer, Shane Shifflett, and Sebastian Herrera emphasize (with emphasis added):

To keep prices down on items like phone chargers, towels, and blenders amidst rising tariffs, America’s largest retailers are employing a variety of strategies.

They are urging suppliers to absorb cost hikes, eliminating complimentary perks from corporate offices, pausing shipments from China, and relying on their existing inventory already imported into the U.S.

…

They cautioned Trump’s administration that avoiding higher prices would be challenging and warned that some products might become scarce if retailers opt not to sell them to dodge tariff costs.

…

Among the cost-cutting measures, Walmart recently informed employees in its Hoboken, N.J., office that complimentary plates, bowls, and cups would no longer be provided, according to sources familiar with the memo. Employees were encouraged to bring their own.

This article is packed with valuable insights illustrating the multitude of ways firms can adapt to tariffs—many of which do not involve simply hiking prices. Walmart’s cutback on employee benefits and the potential discontinuation of product lines by other firms highlight the range of strategies being employed. Additionally, firms are building up their inventories. In another report from the WSJ, other companies are similarly slashing employee perks like travel allowances. All these adjustments represent real costs that extend beyond mere consumer welfare losses and the deadweight losses associated with tariffs.

See also  Trump pivot on tariffs shows Wall Street still has a seat at his table

Economic models, particularly the supply and demand framework, are invaluable tools; they elucidate a great deal about market behaviors and human decision-making. This model focuses on the interplay between price and quantity—two basic variables that people adjust to.

However, in the real world, there are numerous adjustments beyond just price and quantity. The specific margins available and their relative significance will differ from one decision-maker to another, leading to varied responses even under identical constraints. With tariffs, some businesses may increase prices, while others might reduce employee benefits or switch product lines. These reactions hinge on opportunity costs—the practical alternatives that each decision-maker faces.

The primary lesson derived from the supply and demand model is not merely the relationship between price and quantity, but rather the impact of rising costs on various margins. When expenses increase, individuals will economize across a spectrum of options, not just price. Therefore, when analyzing the repercussions of tariffs (or any policy, such as minimum wage), we must look beyond mere price changes. Focusing solely on one margin risks overlooking the complex web of hidden adjustments that occur.

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