University at Buffalo School of Management

18 Buffalo Business | AI AND BUSINESS ANALYTICS SOCIAL IMPACT OF MANAGEMENT BUSINESS OF CLIMATE CHANGE INNOVATION, ENTREPREURSHP AND LEADERSHIP Veljko Fotak: At its core, a tariff is a tax paid by importers to their own government. There's a misconception that tariffs are absorbed by foreign countries exporting to the U.S., but when tariffs on Chinese imports reached 20% in 2018, foreign exporters only absorbed about 1.5%. The other 18.5% was covered by U.S. importers. Charles Lindsey: But how much of that cost reaches consumers? VF: Initially, major retailers absorbed most costs to avoid upsetting customers, resulting in minimal price increases of about 1.5-2%. However, this short-term approach can't last indefinitely. Retailers operate with thin margins, so prolonged tariffs eventually force price hikes, typically within six months to two years. Another complication arises when retailers spread tariff-induced price hikes across various products to miti- gate customer backlash. Scott Laing: Tariffs disproportionately affect lower-in- come consumers. Those living paycheck to paycheck feel the greatest impact because they spend most of their earnings. High-income individuals, whose money largely goes into investments, are less impacted. CL: Interestingly, recent analysis has shown that lower income consumers are the least stressed, perhaps because they're less exposed to stock market volatility. However, overall consumer confidence is currently lower than during the Great Recession, nearing pandemic-era levels. SL: I just think it's kind of a fruitless venture. The attempt to revive manufacturing via tariffs seems outdated. Manufacturing isn't our strength anymore. Growing up in Western New York, my friends who worked at the Ford and GM plants found factory work exhausting and undesirable. CL: Plus, today's manufacturing relies heavily on robot- ics, limiting job creation potential. VF: Tariffs could theoretically revive manufacturing, but it would significantly lower American living stan- dards. Historically, retaliatory tariffs from trading part- ners reduce U.S. manufacturing output. For instance, the T A R I F F S — the taxes governments impose on imported goods — have historically been used to generate revenue and protect domestic industries from foreign competition. With tariffs in the national and international spotlight, we asked three experts: Veljko Fotak, associate professor of finance, Charles Lindsey, associate professor of marketing, and Scott Laing, clinical assistant professor of finance, about international trade, globalization and how businesses and consumers can weather uncertainty. TARIFFS DECODED TARIFFS By Kevin Manne F o t a k L a i n g Li n d s ey WHO REALLY PAYS FOR TRADE WARS?

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