The good news is that Walmart posted its best Q1 in nearly a decade – at least in terms of comps, which jumped 3.4% during the first quarter, as average ticket shouldered the burden (again).
The bad news is, “tariffs are coming”, to borrow Trump’s silly Game of Thrones cadence
Here’s what CFO Brett Biggs said on Thursday morning (there’s a bit more color from Reuters here):
We will do everything we can to keep prices low, but increased tariffs lead to increased prices. It’s very item and category specific. There are some places where as we get tariffs, we will take prices up. [Alternative sourcing] is one of a number of actions that our merchants are considering.
That is about as definitive as it gets. When Walmart is telling you, in the most straightforward terms imaginable, that tariffs will unequivocally “lead to higher prices”, you should pay attention.
Trump, Wilbur Ross and other regime officials have been keen on pretending as though consumer prices somehow aren’t going to rise as a result of the president’s trade war. Although it was possible to avoid consumer products during the opening salvo and subsequent escalations, the day of reckoning will finally come if the administration moves ahead with duties on the entirety of Chinese imports. The USTR’s list in conjunction with those prospective levies includes everything from “live foxes” to toys to “false beards”.
As Bloomberg’s Heather Burke wrote on Thursday morning, Walmart’s response to potential higher tariffs “will likely set the tone for other discount retailers.” And as Goldman wrote the day after the tariff rate on $200 billion in Chinese goods more than doubled earlier this month, the effect of the tariffs on consumer prices over the last 18 months was “larger than… previously estimated.”
“The costs of US tariffs have fallen entirely on US businesses and households, with no clear reduction in the prices charged by Chinese exporters”, the bank wrote, adding that “the effects of the tariffs have spilled over noticeably to the prices charged by US producers competing with tariff-affected goods.” In other words, exporters are not eating any of the costs and other folks are opportunistically raising prices.
On Wednesday, news broke that the Trump administration will delay the imposition of tariffs on autos, and it’s a good thing. Because as Goldman went on to explain in the same note, “imposing 25% tariffs on roughly $300bn of remaining Chinese imports would have a peak effect of 0.5pp on core PCE, while auto tariffs would have a roughly 0.3pp peak effect.” Combining that with the residual effect of the existing levies works out to a peak US inflation impact of 0.9pp.
Speaking of that decision (to delay a decision on autos) and the effect of tariffs on consumers, Wilbur Ross – famous for being rich and old, but best know outside of the finance world for his proprietary soup can index – showed up on Fox Business Thursday to talk shop with former CNBC “money honey” and current wide-eyed, aging sycophant Maria Bartiromo.
Here’s what Wilbur had to say about the prospect of the US lifting metals tariffs on Canada and Mexico (tipped on Wednesday by Steve Mnuchin):
Do note how Wilbur goes out of his way to pretend as though there’s been some kind of steel renaissance in the United States, a laughable proposition to say the least.
More importantly, Ross weighed in on auto tariffs. Here’s that clip:
There’s so much to not like there. Bartiromo gets some (limited) credit for asking the obvious question that we posed on Wednesday, which is simply this: Is the administration rethinking the relative wisdom of slapping tariffs on autos and keeping the metals tariffs on Canada and Mexico in place at a time when it’s at least possible that the US ends up slapping duties on all imports from China?
Ross predictably parroted the same fatally flawed (not to mention laughably childlike) conception of trade deficits which, for the Trump administration, are somehow indicative of “losing” and thereby in need of corrective action. Here’s the quote:
If you look at our trade deficit, ’bout half of it is geographic in nature – that’s called China. The other half is a product, by nature – that’s called automotive.
Again, Ross is suggesting that trade deficits are inherently nefarious things. To use Wilbur’s parlance, “that’s called” stupid. Just ask Janet Yellen, who said this in February:
…when I continually hear focus by the president and some of his advisers on remedying bilateral trade deficits with other trade partners, I think almost any economist would tell you that there’s no real meaning to bilateral trade deficits, and it’s not an appropriate objective of policy.
Asked by Marketplace’s Kai Ryssdal “what would it take” to make her “pick up the phone and call Kevin Hassett or Larry Kudlow”, Yellen responded that she’s “sure Chair Powell and others continue to” have regular contact with the Council of Economic Advisers and the NEC.
“I haven’t picked up the phone”, she added.
Well, Janet, maybe now is a good time.