Blog: Tariffs and Uncertainty
Uncertainty about business response to tariffs can be as bad as their imposition.
Tariffs are in the headlines. Most economists agree that tariffs are inherently inflationary. But the inflation can take many forms and depends upon business reaction in addition to governmental responses. There are many ways for business to cope with tariffs. It's this wide variety of possible responses that have raised uncertainty levels in the markets as much as uncertainty of the actual imposition of tariffs.
According to the Fractal Market Hypothesis (FMH), an increase in long-term uncertainty would result in short term behavior and actions. I originally formulated FMH for security market participants, but I believe it's just as valid for the broader economic marketplace as well, including businesses and consumers.
But how markets and consumers react will largely be dictated by the path that businesses take. It might be useful to list some of the strategies that businesses could take to cope with tariffs.