Week in Insights: Lower Tariffs May Not Yet Mean Lower Prices

Import prices rise nearly dollar-for-dollar with levies imposed. So it’s no surprise the Trump administration is rolling back tariffs on items that are experiencing surging prices, such as coffee and bananas.

The assumption might be that prices will drop accordingly, but that isn’t guaranteed. Supply chains, retailer markups, and consumer expectations can all recalibrate around higher costs—meaning that even when the policy changes, the price tags may not.

After a tariff is applied, contracts are renegotiated, supply chains absorb the new costs, and businesses set a new price floor for end consumers. Over time, prices can become “sticky” because of the expectations they create. Hot dogs selling for $7 at a baseball game prove that consumers can get used to anything.

Research has shown that tariffs on intermediate goods—items that are components in end products—trigger especially persistent inflation.

And in sectors with limited competition or brand loyalty, firms may have little incentive to lower prices to match tariff rollbacks. A retailer could choose to reduce prices by the amount saved on tariffs and hope to make up the difference in volume—or roll the dice on holding prices firm to increase their margin on each unit sold.

Also, with trade policy increasingly volatile, importers themselves might keep prices high as a hedge against political whiplash. One never knows when a social media post after a tense meeting with a foreign dignitary could bring tariffs roaring back.

The bottom line is that cutting tariffs may ease pressure at the border, but without structural change or competitive pressure, it may not ease it at the register. We may have to live with tariff-era prices on our arabica beans long after the tariffs themselves are gone.

—Andrew Leahey

Coffee beans are pictured at the Vanibel cocoa and vanilla production facility, a former 18th Century sugar refinery in Vieux-Habitants, Guadeloupe.

Photographer: Helene Valenzuela/AFP via Getty Images

Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts analyzed IRS shutdown shock waves, the tax case of Publix heiress Julia “Julie” Jenkins Fancelli, and more.

The Exchange—It’s where great ideas on tax and accounting intersect.

Insights

Taxpayers to Feel IRS Shutdown Shockwaves Past Federal Reopening

Taxpayers who plan ahead, maintain compliance, and stay informed can best navigate the backlogs and uncertainty in the wake of the IRS shutdown.

Publix Heiress Tax Case Signals Continued IRS Supervisory Issues

A recent tax case involving Publix heiress Julia “Julie” Jenkins Fancelli indicates that the IRS needs to work harder to conform to reasonable taxpayer expectations.

New Rulings Highlight Need to Review IRS Interest Computations

Recent court decisions show the importance of reviewing how the IRS computes interest on tax deficiencies or refunds, which involves legal and procedural nuance on both sides.

Pharma Tariffs Would Be Importers’ Chance to Revamp Operations

Biopharmaceutical companies can consider strategic reshoring and short-term tactics to minimize their exposure to potential tariffs.

Supreme Court Case Offers Good Defense Against Trump IRS Audits

A 2023 US Supreme Court ruling offer a crucial tool to individuals, entities, and nonprofits to go on the offensive and seek an injunction enjoining civil investigations brought by the Trump administration.

California’s New Federal Tax Conformity to Remain a Moving Target

With politics expected to play a role in determining which federal changes California adopts, taxpayers should plan accordingly—and stay engaged in the legislative process.

AI Is Gaining Grip on Tax Compliance. Tax Pros Must Lead the Way

The boundary between human and machine in compliance operations is blurring—and tax leaders must guide that convergence.

Black Friday Deals Trigger Complex Value-Added Tax Calculations

When a customer redeems a gift card, enjoys a 50% discount, or picks up a “free” bundle, the correct VAT treatment depends on knowing where the line lies between a voucher, a discount, and a supply.

Columnist Corner

Technically Speaking design by Jonathan Hurtarte/Bloomberg Tax

Giving OpenAI federal tax credits on top of existing state and local subsidies for data center projects “would underwrite an entire industry while distorting local priorities,” Andrew Leahey writes in his latest Technically Speaking column.

Any federal tax incentives granted to artificial intelligence companies should at least be tied to measurable public benefit requirements such as transparency mandates, thresholds for jobs created, and clawbacks if necessary, Andrew argues. Read More

News Roundup

Billion-Dollar Tax Break Poised to Fuel Spaceport Development

The provision in the massive tax-and-spending law means spaceports can issue tax-exempt bonds to fund infrastructure projects, much like municipal authorities do to build airports and highways.

Treasury to Issue Rules to Curb Tax Credits for Immigrants

The Treasury Department said it will release rules limiting undocumented immigrants from claiming certain tax credits.

Delaware Approves Business Tax Decoupling to Avoid Revenue Loss

Delaware enacted legislation Wednesday to decouple the state from some federal business tax incentives after a debate over whether the move would drive businesses away from the small but corporate-friendly state.

Company Tax Planning Sidetracked by Growing Global Discord

Multinationals are increasingly becoming embroiled in disputes with tax authorities around the world and spending less time on planning and strategy amid growing trade and economic concerns.

Tax Management International Journal

South African Tax Rules Murky on Debt, Preference Share Funding

Technical analysis of South Africa’s evolving tax treatment of debt and preference share funding instruments is presented with a focus on the March 2025 Tax Court ruling on raising fees and 2025 Tax Laws Amendment Bill relating to hybrid equity instruments.

How Will Generative AI Affect Value Chains and Transfer Pricing?

As GenAI continues to evolve, companies should monitor potential changes in their business models and value chains to understand the impact on existing transfer pricing structures and policies.

Courts Play Key Role As Transfer Pricing Disputes Escalate

Transfer pricing is no longer a technical exercise but a governance issue involving decisions about value chains, intellectual property ownership, and distributor characterization that must withstand courtroom-level interrogation.

Career Moves

Baker McKenzie Hires Deloitte Transfer Pricing Partner in London

Sebastian Ma’ilei will join Baker McKenzie as a partner in its tax practice in London, the firm announced Wednesday.