- The impact of tariffs will depend on who bears their cost, says Jeff Klingelhofer, managing director at Aristotle Pacific—but it doesn’t have to be the consumer, who is “tapped out.” Corporations can better handle an import tax hit because margins “have never been higher,” he says.
With U.S.-China talks ending in essentially a tariff stasis, investors are once again looking at the economy to figure out just how much of a shock the tariffs are going to be.
“The system is incredibly, incredibly fragile,” Jeff Klingelhofer, managing director and portfolio manager at Aristotle Pacific, told Fortune. However, the amount of shock tariffs ultimately deliver will depend on who bears the cost, he said.
Typically, that’s the end user. Importers and economists have for months been saying that the consumer usually pays the cost of import taxes.
“Most suppliers are passing through tariffs at full value to us,” a chemical products company told the Institute for Supply Management in a survey last month. “Taxes always get passed through to the customer.” Studies of the 2018–19 tariffs, which were much smaller, found nearly 100% of the added costs were passed on to the consumer. The Yale Budget Lab estimates that tariffs will cost the typical household $2,836 over the year.
Except, Klingelhofer said, this time could really be different.
“It doesn’t have to be the U.S. consumer” who pays tariffs. “You’re likely to see companies ultimately bear more of the pain of tariffs than consumers.”
Indeed, after absorbing four years’ worth of price hikes and shrinkflation on everything from household staples to housing, consumers may not be able to take much more pain. A record 77% are holding some debt, according to the Federal Reserve.
“The state of consumers is tapped out,” Klingelhofer said. However, “corporate balance sheets are incredibly strong; margins have essentially never been higher in the history of humankind.”
Indeed, corporate profits as a portion of national income, a figure that never exceeded the single-digits until about two decades ago, surged to a record 13.6% in 2021. At the start of this year, they were just slightly lower, at 12.8%.
Companies have an additional incentive to absorb the cost of at least some of the tariffs, he said—the president, whom CEOs have been loath to cross, is watching. Trump’s spat with Walmart in May, directing the retailer to “eat” the cost of tariffs, is a prime example of the type of public policy via social media Klingelhofer said will be much more common if tariffs start to get passed on.
While the exact level of tariffs that companies, consumers, and everyone else will pay is still up in the air, Klingelhofer says the direction is clear: “It’s going up notably.”
“I find it very hard to believe we exit this presidency with tariffs anywhere below the low teens, versus 1.7% of GDP,” their average level at the beginning of 2025, he said.
