When President Donald Trump launched his tariff blitz, economists warned of soaring inflation as costs hit consumers. The hit was delayed by corporate countermeasures, but now early signs of tariff-driven price hikes are emerging, and Morgan Stanley warns the full inflation punch is coming, forcing businesses to rethink hiring and spending.

"Recent inflation data show goods prices firming as tariffs feed through, essentially acting as a tax on consumption and production," Morgan Stanley economists said in a recent note, highlighting growing cost pressures squeezing corporate margins.

The average effective tariff rate on U.S. imports stood at 8.9% in June, well below the expected 16%, largely due to factors like trade diversion, inventory management, and delayed implementation. But Morgan Stanley expects these rates to ramp up in July and August as China's export share rebounds and the suspension of duty-free de minimis treatment starts affecting consumer goods.

Tariffs hit hardest on final consumer goods, with apparel's rate hitting 24% in June, followed by furniture at 16.1% and motor vehicles at 15.8%. Meanwhile, manufacturers face higher costs for inputs like steel, chemicals, and electronics, feeding inflation across the supply chain.

To mitigate the impact of tariffs, companies have been deploying a range of strategies: reshaping supply chains under "China+1" or nearshoring models, stockpiling inventories ahead of tariff deadlines, and sharing costs through a mix of selective price hikes, supplier negotiations, and margin absorption. Apple (NASDAQ:AAPL), for example, is shifting more assembly of U.S.-bound products to India and Vietnam, aiming to reduce exposure to China tariffs by 2026.

Source: Investing.com