Here’s the thing about tariffs: they’re like a bad houseguest nobody invited. They show up, mess with your stuff, and suddenly everyone’s arguing about who’s paying for dinner.
As of May 12, the average effective tariff rate hit 14%—the highest since 1938. Yeah, you read that right. We’re talking Great Depression-era numbers. A year ago, we were chilling at 3%. Now? Goldman Sachs thinks we’re heading to 17% by year’s end. That’s not a trend; that’s a trajectory.
So here’s the million-dollar question: who actually pays for this mess? Companies? Consumers? Foreign exporters? Spoiler alert: it’s complicated.
Goldman Sachs ran the numbers and says companies will pass 70% of tariff costs to consumers through higher prices. Businesses absorb 15%, and foreign exporters eat the other 15%. Sounds neat, right? Except other surveys say consumers only shoulder 49% of the hit, with US businesses taking 39%. So basically, nobody really knows, and that’s the real problem.
The earnings impact is already showing up. Q2 earnings growth is expected to decelerate to 4%, down from 12% in Q1. Margins are contracting by 50 basis points. Some companies are getting creative—tapping into pre-tariff inventory stockpiles to minimize the damage. Others? They’re just hoping price increases stick.
Here’s what’s wild: capital spending isn’t slowing down. AI companies are still throwing money at infrastructure like it’s going out of style. Everyone else? They’re pumping the brakes due to policy uncertainty. It’s a tale of two economies.
For the full year, Goldman Sachs forecasts S&P 500 earnings growth of 7% to $262 per share. The S&P 500 itself? They’re calling for 6,500 in 12 months—a modest 4% gain from current levels. Not exactly thrilling, but not catastrophic either.
The real takeaway: tariffs are a drag on earnings, but they’re not a death sentence. Companies are adapting. Consumers are paying. And investors? We’re all just trying to figure out what happens next.
