Who pays for these tariffs? Businesses or the consumer?

European markets have kicked off the day on a mixed footing following an Asian session that provided a remarkably upbeat assessment of current conditions despite Donald Trump’s widespread Tara announcements. Chief amongst the countries to be targeted are the Korean and Japanese, with US consumers facing a potential 25% price hike for some of the electronics and vehicles coming from these two key trade partners. With the US second quarter earnings season approaching, we are set to be provided with an insight into exactly who pays these tariffs. Will we see businesses swallow the increased cost through lower margins and earnings, or will they pass the costs on to the consumer, thus signalling impending inflationary pressures? For markets, the outperformance of the Korean KOSPI and Japanese Nikkei 225 highlight the market view that we are likely to see a deal struck in the coming weeks to avoid sparking a fresh inflationary surge in consumer prices. Notably, while US inflation is yet to pick-up, the fact that Trump has decided to hit BRICS nations with an additional 10% (they account for over 40% of global GDP) means that we are likely to soon see price pressures build.

The RBA rate decision announced overnight saw a surprise pause, pushing back against widespread expectations of a 25bp cut from the committee. The vote saw six of the nine-person committee opt for a pause, citing a more balanced outlook for inflation risks and labour market strength. The fact that we already have the RBA slowing their pace of easing after just two rate cuts has provided fresh impetus for AUD bulls, with the pro-cyclical currency looking primed for a period of strength once we move through this phase of tariff-led global concern. However, it is notable that while Trump has complained over the Fed’s indecision in the face of global easing, we are seeing implications coming into play for other nations as a result of US trade policy.