Reacting to the Tariffs

A NEW TARIFF REGIME takes effect today. If the costs are passed along to buyers, the price of cars, orange juice, clothing and Swiss chocolates could increase, possibly dramatically.

I dealt with price shocks earlier this year. It gives me some insight into how we might behave if prices rise suddenly. Although I could have afforded the higher prices, the strong emotional impact made me highly adaptive. The price shock mobilized me to take action, even though it was only over a dollar or two.

In February, Patricia and I flew to the remote Hawaiian island of Molokai, which is about the size of Manhattan but with only 7,000 residents. We flew on an eight-seat plane that resembled a giant grasshopper. Before taking off, a couple of other passengers shoved big tubs of groceries into the plane’s cargo hold. A trip to the island’s grocery store explained why. Prices there weren’t just high—they seemed absurd.

I kept taking items off the shelf and then putting them back after I saw the price, such as $12 for a small jar of mayonnaise. Pineapples cost $8, more than double what we paid at home in Pennsylvania. Eggs were $12 a dozen.

A local acquaintance explained that Molokai was at the tail end of the global supply chain. Everything costs more at the grocery store because it has either been flown in or shipped over the rough seas from other Hawaiian Islands.

I had a startling reaction. Prices seemed so out of line that it became a game to stock our kitchen with less costly foods. We pursued several methods that shoppers might adopt if the tariffs start to pinch. Here are some hacks we developed over our two-week stay:

Buy local. A man sold local fruit from a card table set up on the sidewalk between the island's two grocery stores. Three mangos were $5. They became my breakfast staple. I bought lettuce and pygmy bananas from him as well. I found local eggs at the farmer’s market for $10 a dozen—not a bargain, but less than at the grocery store.Trade down. We chose simpler fare for our home-cooked dinners. Two nights we had omelets, two nights spaghetti with red sauce. We ate fish only once.The prices of alcohol and ice cream seemed comparable to those on the mainland so we bought them with abandon. We blended tropical drinks from local mangoes and rum. Pints of ice cream made for a refreshing lunch after a morning of snorkeling.Do without. There were a lot of brands that we just didn’t buy in Molokai. Rationally, I could have afforded them. The price shock, however, had me tut-tutting and putting them back on the shelf.

Given my strong emotional reaction, I think people will respond quickly to any price increases that flow down to them. Based on my island sojourn, I expect that even well-off Americans will find cheaper stores, trade down and do without some things—even little things—whose price seems too high compared to yesterday.

It’s possible that consumers’ strong reactions may blunt the impact of tariffs if retailers and manufacturers decide to share the expense of them in preference to losing too much business. Let's hope so.

 

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