Austan Goolsbee:
"Companies Are Stockpiling Inventory Ahead of Tariff Hikes"
Warns of Possible Economic Slowdown After Temporary Surge
U.S. companies are stockpiling two to three months' worth of inventory in preparation for the full implementation of tariff policies, which is artificially boosting economic activity. However, there are forecasts that economic activity could slow down this summer once the effects of this inventory buildup disappear.
Austan Goolsbee, President of the Federal Reserve Bank of Chicago, said in an interview with CBS's "Face the Nation" on the 20th (local time), "Companies are stockpiling inventory, and this sudden buying frenzy can artificially generate a high level of economic activity."
He noted, "This type of preemptive purchasing is likely to be much more pronounced on the corporate side than among consumers," adding, "I've heard from many companies that, due to increased uncertainty, they are proactively securing enough inventory to last 60 or 90 days."
President Goolsbee specifically pointed out that companies in the automotive sector are stockpiling large quantities of imported parts. Previously, President Donald Trump announced a 25% tariff on imported cars and parts. Following the implementation of tariffs on imported cars on the 2nd, and with tariffs on car parts set to take effect on the 3rd of next month, companies are preemptively importing car parts and accumulating inventory.
In particular, companies are expected to be significantly impacted because they import a considerable number of auto parts, electronic components, and high-end consumer goods from China, where the U.S. has imposed a total tariff rate of 145%. The U.S. has applied a basic tariff of 10% to all trading partners and deferred country-specific reciprocal tariffs for 90 days. However, for China, it has imposed a reciprocal tariff of 125% and a fentanyl tariff of 20%, totaling 145%. While some electronic products such as smartphones and PCs are exempt from reciprocal tariffs, other products imported from China are subject to the high 125% tariff rate.
President Goolsbee warned, "After 90 days, when tariffs are reviewed, we don't know how large they will be," cautioning that the temporary rise in economic activity may be followed by a slowdown in the summer.
Dragon Glassware, a beverage container company that imports products from China, has secured enough inventory to last until June. Matt Rollens, CEO of Dragon Glassware, said, "If we pay the 145% tariff on Chinese imports, we would have to raise consumer prices by at least 50%, which would likely reduce demand," adding, "For now, we are temporarily storing products in China."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
