Tariffs Are Not Squeezing American Consumers or Businesses
If tariffs were inflationary, this week’s economic data would be flashing red. Instead, they’re flashing something else entirely: discipline, resilience, and bargaining power.
The Consumer Price Index (CPI) came in nearly flat for May. Headline CPI rose just 0.1 percent, and core inflation excluding food and energy also rose a meager 0.1 percent. Over the last 12 months, all-in prices are up just 2.4 percent and core prices are up just 2.8 percent.
The Producer Price Index (PPI) tells a similar story. The Bureau of Labor Statistics reported Thursday that final demand prices rose just 0.1 percent. Prices for goods were up 0.2 percent and are up just 1.3 percent over the past year. Services ticked up 0.1 percent. Over the past year, PPI is running at 2.6 percent, with core PPI up only 3.0 percent. So-called “super core” PPI, which also excludes the wholesale and retail margins known as trade services, is up 2.7 percent.
That’s not an inflationary spiral. It’s a sign that the thing so many economists claimed was impossible—foreign producers paying the tariffs—is really happening. Tariffs are taxes on foreign producers.
Margins Are Rising. Prices Aren’t. That’s the Tell.
One of the most revealing parts of the PPI report was the increase in trade margins—the difference between what businesses pay and what they charge. You’d expect these margins to shrink if tariffs were raising costs and companies were struggling to pass those costs along.
Instead, they’re widening.
Machinery and vehicle wholesaling margins jumped 2.9 percent. Metals, minerals, and ores wholesaling surged 4.9 percent. Apparel and alcohol retailing margins rose.
Intermediate demand trade services—margins for goods sold between businesses for goods that get further processed before sales to end-users—rose 0.7 percent, with gains concentrated in construction, metals, and logistics sectors.
These are not soft margins. These are aggressively expanding business markups—even in sectors that are supposedly under “tariff strain.”
Meanwhile, consumer-facing prices stayed flat. Final demand services excluding trade, transportation, and warehousing came in flat for the month.
This combination—rising margins with flat prices—signals that companies aren’t passing along higher costs. They’re pushing them upstream, onto suppliers. There’s no “pass through” to consumers and no margin squeeze. Instead, what we are seeing is a “pass back” to suppliers.
Tariff Inflation? Try Tariff Deflation.
The conventional narrative says tariffs are a tax on consumers. But the data say otherwise. If U.S. companies are holding prices steady and expanding margins, it means the cost burden is falling on foreign producers.
We’re seeing a new equation: Tariffs → Suppliers discount to retain access → U.S. firms preserve pricing → Margins expand.
And it’s showing up in the input data. Prices of unprocessed intermediate goods fell 1.6% in May. Processed goods for intermediate demand prices rose just 0.1 percent.
Even where input prices rose—like in nonferrous metals—the price increases stopped at the business-to-business level. Final goods inflation? Nowhere to be found.
A Golden Era for Workers, Not Foreign Manufacturers
And here’s the kicker: wages are rising faster than prices. Average hourly earnings are up 3.7 percent annualized through May. For production and non-supervisor workers, average hourly earnings are up 4.6 percent. That’s far above the rate of inflation.
The bottom line: Tariffs aren’t squeezing consumers; they’re squeezing foreign suppliers and protecting the American wage base. That’s not economic malpractice. That’s economic sovereignty.
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