The Retired Investor: Trump's Tariffs and the Holidays

It is that time of the year when consumers begin planning for the holidays. It will also be a time when prices on almost everything are expected to rise. You can blame that on tariffs. After several months of absorbing rising import costs due to Donald Trump's tariff policies, American corporations have had enough.

 

Currently, approximately half of all goods imported into the United States are subject to substantial tariffs. Considering duties, limits, and other aspects of the president's trade policies, more than 90 percent of imports have been impacted in some way. This tariff debacle is truly a historic event, not seen in this country in over 100 years.

 

Up until now, the impact on U.S. consumers, who are already reeling from unrelenting inflation, has been negligible. That is because exporters and U.S. corporations have borne the brunt of these tariffs and the associated higher costs. The bad news is that Goldman Sachs economists believe that companies will now begin passing on as much as 70 percent of tariff costs via higher prices to consumers.

 

As it stands, predictions by research firms regarding consumers' willingness to spend over the next two months are mixed. Deloitte expects holiday spending to decline by 10 percent due to economic uncertainty, whereas Visa anticipates a 10 percent increase in holiday gift-giving. Gallup expects neither, with consumers spending about the same as last year. However, these forecasts assumed prices would remain in about the same range as before during the gift-giving season.

 

This week, all eyes were turned toward the Supreme Court. On Wednesday, the justices heard arguments over President Trump's unilateral decision to impose these steep tariffs on the world. Three lower courts have already rejected these tariffs on the ground that Trump illegally used a 1977 regulation, the Emergency Economic Powers Act, that grants presidents the power to regulate the economy during an emergency. This act was originally intended to deal with national emergencies, such as war or natural disasters, and its use in this context is a point of contention in the case.

 

At stake is the possibility that the court rules the tariffs illegal. As it stands, the lower courts have allowed the president to continue to collect tariffs until the higher court decides the case. And if the court rules against the president, will they also demand that the tariffs be refunded? 

 

The exact cost of a refund depends on when the case is decided and the amount that has been collected. We know the federal government raised $195 billion in customs duties in Fiscal Year 2025. Analysts expect that roughly $90 billion is in jeopardy. That amount dwarfs any refund the country has refunded in the past.

 

The tariffs collected and paid for by U.S. companies and American consumers have been used to reduce the country's deficit. If that were to be undone, some on Wall Street would not take that lightly because the deficit would balloon higher almost overnight.

 

On the plus side, if a refund were to be issued, corporations and exporters would benefit. Their profit margins would expand since they have paid the lion's share of costs year to date, as for what to we, the consumers, who have paid higher prices because of those tariffs, I see no chance of anyone giving me a refund for the grill or washing machine I purchased at a stiff mark-up this year.

 

No one should be surprised at this situation. Voters have long been aware that their president often takes shortcuts in everything he does, whether in business or politics. The betting market believes that the Supreme Court will rule against Trump's attempt to end-run the rules. The president's actions tell me that they may be right. Trump is preparing a Plan B in the event he loses. There are several laws already on the books that allow him to levy tariffs (with congressional approval), although the rate of tariff and the length of time are not open-ended. This process would take more time, but in the end, he could reinstate about 80-90 percent of the existing tariffs at lower rates. His administration has been working furiously on this fallback plan over the last two months.

 

Readers should not expect a decision from the Supreme Court anytime soon. The case is a thorny one involving the extent of presidential power and authority. It will impact U.S. relationships with numerous countries and could significantly undermine one of Trump's major policy initiatives. The judges know that they are walking a fine line.

 

If their decision is too draconian (i.e., no tariffs, refunds, etc.), this could have serious ramifications for everything from stocks and bonds to commodities, the dollar, and financial markets in general. They will likely find a middle ground that restrains the president but does not cause undue havoc in the financial markets.

 

The first day of hearings reportedly did not go well for Team Trump. The justices seemed skeptical of the president's authority to impose his most sweeping duties. In any case, it is unlikely that the verdict will be announced in time to save the holidays, although some optimists believe it could happen before the end of the year.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.