SMU Community Chat: Tariff-induced panic purchases, inflation, and calculating costs 

Current conditions

“We went through a stocking-up period, buying ahead, and you can see that very noticeable spike early in 2025. Then there’s a predictable correction,” Derry said.  

He added, “When we have too much inventory on hand, and then this is kind of a correction, you can see in the latest month that inventories might be stabilizing/normalizing a little bit.” 

Derry noted that inventories could be drawing down and that consumers may face much higher prices as tariffs begin to flow through to them more regularly.  

“The opportunity to buy ahead has passed. If that was one of your strategies, you know you have a window in which to make that successful, and that window is now closed,” he said, adding, “At ISM, we think signs of inflation are embedded in the supply chain. Everything that moves in the supply chain was up 10.1% over the prior year.” 

Tariff vibe shifts

Derry explained that the general US mood on tariffs has morphed from a fear into a psychology. The former is responsible for sparking short-term mitigating behaviors, such as excessive stocking or absorbing additional costs that are normally passed on to consumers. 

He says the new psychological shift is associated with longer-term strategies for businesses to succeed in the evolving marketplace.  

“What we’re actually seeing is the psychology of tariffs. Suppliers are trying to push price increases to their buyers with the justification that tariffs are coming. Now, it’s beginning to creep in at the consumer price level,” he said.  

Increases in prices in anticipation of tariffs have led to higher consumer prices, with inflation rising 2.7% year-over-year, he continued. Rising inflation doesn’t bode well for interest rate cuts.  

US President Donald Trump hasn’t minced words regarding his desire to see the rates cut. High interest rates have been cited as a cause for less borrowing, fewer projects, slowing construction, and overall market contraction.

“Prices have stabilized at a high level. If I’m a buyer and a manufacturer, my gross margins will get crushed, or I’m going to try and pass the price increases on to consumers, and I think we’re beginning to see that,” he commented.

Consumer and company considerations

Derry used news from General Motors as an example of the margin compromises companies are grappling with.  

“Their profits were reduced in the second quarter by one-third of the normal levels of profits they would have expected to generate. It was 100% attributed to tariffs. And, GM has resisted increasing the prices of its vehicles until this point. And now it’s an open question, will it have to increase prices?” he asked.  

ISM foresees selling through inventories and a start to restocking in the second half of the year. However, Derry cautioned that the “outlook is uncertain.”

Asked whether the tariffs are having their intended effect of reshoring, he explained that it is too soon to tell.

Calculations and negotiations

Derry also spoke to the logistics involved in enforcing and calculating the proper tariff amounts, considering the various levels and whether tariffs stack on some items, and if others contain exempt components.

“The biggest takeaway from a large conference I attended is that everyone is solving for them now. By the time we get to the end of 2025, we’ll have it figured out,” Derry said. 

His thought is that once the deals are made, it will create enough stability for companies to work out their calculations and for consumers to understand the overall costs.  

Derry said the Trump administration’s approach may have been the most effective way to bring highly resistant trade partners to the table. He explained that diplomatic courses hadn’t moved the needle in the past and that the president may have finally broken through with some of the most protectionist countries.  

“Maybe there is some merit in this sort of shock and awe approach that they’ve taken. Yeah, it’s caused a lot of short-term pain, but maybe that’s the only way you get people’s attention? So I do think we’ll get some bilateral deals,” he said. 

Derry told participants that he believes “tariffs are here to stay.” He expressed confidence that the US business community would adjust and strategize for long-term success.

If you’re an SMU subscriber and you missed the Community Chat with Tom Derry, you can access a replay here on our website. While you’re there, check out our extensive library of past Community Chats!