Despite 15% tariffs on imported cars and parts, new vehicle prices have seen minimal pass-through to consumers. This surprising lack of inflation suggests strong offsetting deflationary pressures or a much longer-than-expected lag before costs are reflected in sticker prices, challenging conventional economic models.

Instead of immediately passing tariff costs to consumers, US corporations are initially absorbing the shock. They are mitigating the impact by reducing labor costs and accepting lower profitability, which explains the lag between tariff implementation and broad consumer inflation.

Despite increased costs from tariffs on parts and imports, new vehicle prices have not risen as expected. Automakers have chosen to absorb these costs, taking a hit on profit margins rather than raising prices and risking a loss of market share to competitors.

Economic analysis debunks the political claim that foreign nations pay for tariffs. In reality, there is a near-complete cost pass-through to American buyers. U.S. consumers ultimately shoulder 96% of the tariff burden through higher prices, while foreign firms absorb only a negligible 4%.

Ford builds over 80% of its US-sold vehicles domestically. However, this scale requires importing the most parts, so US tariffs on parts penalize Ford more heavily than companies that import whole vehicles at a lower effective tariff rate, creating a competitive disadvantage.

Unlike in 2021-2022, companies are now more reluctant to raise prices. Key factors include consumer resistance after high inflation, anchored inflation expectations, political scrutiny, and significant uncertainty over tariff policies, which makes firms fear losing market share if they act prematurely.

Kai Ryssdal explains that the current rise in consumer prices is a lagging effect of tariffs. For months, businesses absorbed these costs to protect market share. Now, with squeezed margins, they are forced to pass the costs on to consumers, resulting in a delayed but significant inflationary impact.

The inflationary impact of tariffs is appearing slower than economists expected. Companies are hesitating to be the first to raise prices, fearing being publicly called out by politicians and losing customers to competitors who are waiting out the trade policy uncertainty.

Ford manufactures over 80% of its US-sold vehicles domestically, yet faces a huge financial penalty from tariffs. Because it's a top US manufacturer, it must import the most parts, leading to 'stackable' tariffs that CEO Jim Farley says evaporate about 20% of the company's profit.