Even for an economy as large as the United States, $70 billion still counts as a significant sum of money. After the first round of President Trump’s tariffs were ruled illegal by the Supreme Court, customs officials have already issued that amount in refund checks. Here’s the problem, however: none of it appears to have been passed on to consumers in the form of lower prices. In reality corporate America is pocketing the money – but it is also playing with fire by inviting retaliation from President Trump.
Almost no major policy has ever been quite so chaotically implemented as the tariffs imposed by President Trump on the oddly named Liberation Day in April last year. The levies were charged, then changed, then suspended, then imposed all over again, before the Courts finally decided the White House had exceeded its authority, and the Administration instead switched to a whole new argument for taxing imports.
The result? Not only has everyone been left bewildered by the changes of policy, much of the money collected the first time around now has to be sent back to the companies that paid it. In June alone $49 billion was refunded and so far $70 billion has been sent out, with more on the way. In other words, serious money.
But where has it all gone? After all, you would expect that cash to flow back into the economy in two possible ways. Either it goes straight to the bottom line of the companies receiving it, as a kind of one-off bonus, or else it is passed on to customers in the form of lower prices. Judging by the data so far, remarkably little of it is showing up at the till. The US inflation rate is still running at 3.5 percent, more than the Federal Reserve would like. Prices are definitely not falling, that is for sure.
It is hardly surprising that Democrats, and plenty populist leaders on the right as well, are seizing on that as proof of corporate greed. Big business used the tariffs as cover to raise prices, and now that the tariffs are being unwound, it is refusing to give the money back.
The corporate defense of what is happening makes very little sense. Take the “inflation ate our margins” line that a few companies have been offering up as their excuse for holding onto the cash. It does not really stack up. Inflation in the United States has been running at a fairly modest rate this year, and nothing like the spike of 2021 and 2022. Oil, at around $80 a barrel, is hardly extraordinary once you adjust for inflation over the past decade. In fact, it is well within a normal historical range. If companies want to argue that broader cost pressures have simply eaten the refund before it ever reached the consumer, they need a better argument than the current one, because the numbers clearly don’t support it.
What is actually happening is simpler, and less flattering. Companies are doing what companies generally do when nobody is keeping a close eye on them. They are just keeping the money. Perhaps in time competitive pressure will force them to lower prices. For now, however, they are hanging on to it.
“President Trump will almost certainly retaliate with full blown price controls.”
Sure, it will boost the quarterly earnings, but it is a very risky strategy. President Trump has already shown, repeatedly, that he is more than willing to intervene directly in price setting when he decides a company or an industry is taking the American consumer for a ride. He has already bullied the pharmaceutical firms over drug prices, claimed that Wal Mart cut prices at his request and claimed personal credit for cutting the price of eggs. He has intervened in price setting more often than any President since Richard Nixon in the early 1970s.
There is no reason to think tariffs will be any different. If the White House decides that companies pocketed refunds that should, in fairness, have been passed through to customers, it would be entirely in character for Trump to intervene, whether through public pressure, procurement leverage, or the threat of new tariffs targeted specifically at the worst offenders. And, if we are being honest, even defenders of the free market will find it hard to blame him.
There is a real danger here to corporate America by sitting on this money rather than sharing it. A new round of tariffs is due to be unveiled at the end of this week. Rather than treating tariffs as a one-off pricing opportunity to be milked for fatter profit margin every time the policy shifts, the corporate giants would be far better served treating them as simply a fact of doing business under this administration. They should learn to live with the tariffs, rather than trying to keep the refunds every time Washington changes its mind.
If they don’t, President Trump will almost certainly retaliate with full blown price controls. In the medium-term that will be worse for everyone. It would be far better to just give the money back – before it is too late.
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