Shelley E. Kohan (00:01.512)
Hi everybody and thanks for joining our weekly podcast. I’m very excited to welcome back Dan Altman. Welcome back to the podcast Dan.

Dan (00:11.061)
Thank you so much. It’s great to be here again.

Shelley E. Kohan (00:13.932)
We’d love having you here. You are the author of the High Yield Economics newsletter, which by the way is free to subscribe to. So I encourage our listeners to do that. And you are chief economist by trade. The other thing I love about you is that you are a bestselling author and you actually have several books that have already been written and have sold well. And I believe you’re coming out with a new book this fall in November about the best decisions you’ll ever make.

An economist guide to saving time, making money and living well. And it’s kind of all about how to take this economic thinking into making better decisions in your everyday life, including purchasing, financing, et cetera. Do I have all my facts right there November 3rd?

Dan (01:00.999)
Absolutely right. That’s the publication date right now. This book is really going to unlock a lot of tools and frameworks for thinking about decisions that people can use in their everyday life. Just like you said, from things as simple as how much you should buy in bulk at a supermarket to some big decisions like how to sell your house and get the best price.

Shelley E. Kohan (01:20.47)
So what we’ve been through the past two years, the consumers, I know all the rising inflation, all the stressful things going on with tariffs, which we’re going to talk about today. I think the book time is absolutely perfect. And I wanted to let you know, I have already pre-ordered mine on the Kindle version. So thank you.

Dan (01:38.751)
Thank you, that’s fantastic. You might be our first order. So appreciate that very much.

Shelley E. Kohan (01:42.126)
Absolutely. Okay, so today we’re talking about hot off the press news. like we could do the podcast every day this week, and you probably have some new information. just the story is just evolving and changing. So I want to talk to you and get your insights about the Supreme Court reversal of the tariffs that went into effect. What does that mean for retail? What should we be thinking and looking about? So I know it’s a huge topic, but I’m gonna let you kind of jump into it.

Dan (02:12.541)
Yeah, so a lot of the tariffs that the current administration imposed were under something called the IEPA, the International Economic Emergency Powers Act, which gave the president the power to impose, he thought, certain rules on international trade if there was an economic emergency going on.

and the administration termed our current situation with a fairly large trade deficit to be an emergency and imposed these tariffs. Problem was there was no mention of tariffs in the act. So Congress didn’t really give the president authority to do that. That’s what the Supreme Court has decided. So what this means is all those tariffs that were imposed, many of them anyway, because not all of them were under the same authority, but many of them that were imposed starting back in April were declared illegal.

And a lot of companies are now thinking about suing to get their money back. FedEx is a big one that’s already done it.

And so the question is, will they be able to get their money back and what happens next? Well, we already have some idea of what’s going to happen next because the president has promised to replace the IEPA authority tariffs with new tariffs, especially under Section 122. But that has some big problems attached to it, too. So there’s certainly a lot of uncertainty remaining for businesses. And we really don’t know how businesses and consumers are going to come out of this because there are lot of questions about where that tariff revenue is going to go.

Also, what’s going to happen to prices?

Shelley E. Kohan (03:39.81)
Yeah, it’s really interesting because last the number I heard, and this could have changed in the past 24 hours, is that there’s $175 billion that’s waiting to be reversed out and given back to all the companies that paid them out. But, you know, when I look at this, you know, I come from retail operations. I just don’t know how logistically they’re going to go through all the data and information to actually hand out checks to retailers who pay tariffs.

Dan (04:09.373)
It’s a huge question. I think it is doable.

I think at the very least, companies have records of the money that they paid. The government should also have records and those should be attached to specific orders and specific shipments. So it can be sorted out. It is a bit of a mess, but we have to uphold the law. And we’ve seen this sort of thing happen before. I wrote a post on LinkedIn that referenced the Madoff case, the Ponzi scheme by Bernie Madoff, which actually made a lot of money for quite a few people. And they had to give that money back because it was illegitimately gained.

Shelley E. Kohan (04:32.611)
Wow.

Dan (04:42.225)
So we have experience in sort of clawing back money that wasn’t supposed to go to where it went and giving it back to the people who originally were supposed to have it. But this is the government. This is the federal government. And this is a whole other kettle of fish. It’s just a sort of thing that you need to do sometimes if you’re going to uphold the law.

Shelley E. Kohan (05:01.28)
And so you mentioned, and I know it’s very interesting, and if I’m a consumer sitting here thinking all these prices went up because of terror, so I paid all these high prices, but they are illegal, so how am I, the consumer, going to get my money back? What’s your thoughts on consumers actually seeing a refund of some sort?

Dan (05:19.251)
I wouldn’t get my hopes up, to be quite honest. Companies that paid the tariffs, since they’re the actual ones who did the importing, they could get that money back. Are they then going to rebate that money to consumers somehow? That would be much harder because it’s much harder to trace those purchases to specific people. And it’s not something I think most companies are inclined to do anyway, if you don’t mind me saying. And so then the question becomes, well, what happens to prices? Are they going to go down?

because the tariffs are no longer in place. Well, we don’t know if new tariffs are coming or not. And companies are much better at raising prices than they are lowering prices, generally speaking. So I think really the consumer is the one left holding the bag here because companies may be able to get their money back, but consumers probably will never see those dollars that they paid under the auspices of tariffs.

Shelley E. Kohan (06:07.308)
Yeah, it’s interesting. So just from a retail perspective, so once you have a cost of goods, so cost of good is what it costs to manufacture, produce, make, logistically send that product, crosses the border, that cost of good never changes. It doesn’t go down, right? It costs what it costs at that time. So what I’m hopeful of is if you kind of fast forward that into future products, if those costs comes down, would consumers benefit by maybe lower costs in the future? But like you said,

The other caveat is more tariffs might then increase those costs too.

Dan (06:43.807)
Yeah, I think just the way a lot of companies waited to raise prices until they were sure the tariffs were actually going to be a thing, we’re going to see companies maybe waiting before they decide that tariffs aren’t going to be a thing as well. We see this administration swearing up and down that they’re going to apply tariffs in other ways. And the president even thinking that tariffs could someday replace the income tax, which is absolutely impossible for reasons that I need not get into now. But there’s no way or nothing.

Shelley E. Kohan (07:12.075)
another podcast.

Dan (07:13.275)
Yeah, there’s nowhere enough revenue from tariffs to do that. There’s not even enough revenue from the tariffs that they did impose to close the hole in the budget that was opened by the One Big Beautiful Bill Act. it’s not that much money as far as the overall fiscal picture is concerned. But going back to the original point, I think companies will wait to see whether new tariffs are in place. not going to lower prices on the assumption that

New tariffs are not there. And even if the tariffs are smaller or there are fewer tariffs, I think what they’ll probably do is not

lower prices, but just wait longer to raise prices again. So we might see prices flat for a long time. This is what economists call nominal rigidity, saying it’s actually hard to change prices a lot because it costs money to change prices on everything, change your pricing structure. It takes effort. And so they’d rather let sleeping dogs lie, as it were, and they’ll just sort of wait for their costs to catch up to the prices.

Shelley E. Kohan (08:11.234)
So it’s really the consumer, like you said, that’s really paying for all of this and really not seeing anything not from the past. And it sounds like may not see anything in the future either as a benefit.

Dan (08:22.079)
That’s absolutely right. What has essentially happened here, if you look at the bottom line, is companies raise prices so that they would be able to pay the tariffs. Now they’re getting the money that they paid as tariffs back and they’re just left with much higher margins as a result. So it was basically a way for the government to help companies gouge the consumer. If you look at it like that, I mean, that’s a very nasty way of looking at it. But that would have been another way to achieve the same outcome that we’ve seen right now.

And so great for companies in a way it’s going to cost them some money probably to get that tariff revenue back. But not great for the consumer. It doesn’t do anything to help us with interest rates either because that big hole in the budget is still there. We’ve done nothing to control the national debt. And so long term interest rates are going to stay high. It’s really not great for the consumer overall.

Shelley E. Kohan (09:15.702)
Yeah. So let me ask you a question. So, and I don’t know if you know, you probably don’t know all the details of it, but I bet you have an opinion on this. So the Trump Organization negotiated a bunch of trade agreements to offset higher tariffs with some countries. So like the UK, for example, they made this side deal with them on tariffs. What happens to all those deals?

Dan (09:38.259)
A lot of those deals are not worth the paper they were printed on at this point, if they were even printed on paper and not just an envelope or a napkin or something. Some of them were thrown together pretty quickly. But yeah, a lot of those deals are now invalid because they were based on a tariff schedule that no longer exists. And so they will have to be renegotiated. What is kind of bizarre is that actually some of our close to economic allies are now paying higher tariffs.

after this ruling relative to some other countries with which we compete a little more aggressively. And so, you know, it’s another good day to be a Japanese or a Korean carmaker, not so much if you’re a UK or Australian exporter.

Shelley E. Kohan (10:06.445)
Right.

Shelley E. Kohan (10:21.978)
yeah, this is becoming so complex and I’m not sure, do you think we’re gonna see the light of all this mess in the next few months or is this something we’re gonna be kind of untangling for the rest of the year?

Dan (10:37.715)
I think it’s to take time, as I recently posted also on LinkedIn, if you’re an executive in the White House and you are trying to keep a continual schedule of tariffs that have not been legislated in place, then you’re essentially playing a game of whack-a-mole. know, all of these extra authorities that you try and find to justify your tariffs are temporary or have some sort of finish line. And so

When one expires, you have to put another one in place right away if you want to maintain these tariffs. This Supreme Court ruling is just kind of an example of what we’re likely to see over the next six months to a year as the administration tries to cobble together a new tariff regime. And again, know, Congress is the one that’s supposed to be doing tariffs. Tariffs are a tax. It says in the Constitution, Congress has responsibility for taxes. But this White House insists that it’s going to go it alone.

And as a result of that, we’re facing a lot more policy uncertainty. And this has really been the problem for the last eight months or so. We have seen the economy in a sort of paralysis, both in the job market and in investment plans, because people didn’t know where these economic policies were going to land. We thought things had sort of been settled by the end of the year and the economy was really poised to grow. But now we’ve opened up all this uncertainty again.

Shelley E. Kohan (11:59.658)
It’s quite amazing and I what’s happening with the stock market based on all these things are you saying kind of a ripple effect go into the markets.

Dan (12:09.255)
It’s kind of hard to say right now, much of the gains in the stock market over the past year or so were driven by these AI and tech related stocks, which

came to represent a hugely outsized portion of the major stock indexes. So if you see numbers from the S &P 500 or something like that, you got to realize that a quarter to a third of that index may be based on a small number of companies that are really being driven by this AI and data center wave. But if we look at broader indices, yeah, I think there is a disappointment here, which you’re going to see reflected in the markets because

companies were poised to start making those hiring and investment decisions now that the policy environment had settled down and there was some hope that long term interest rates would come down as well. But that has all been blown out of the water. And it’s basically because this administration will not accept the Supreme Court ruling and is insisting on continuing in this direction of using tariffs to raise revenue when it’s really not the executive’s job.

Shelley E. Kohan (13:11.032)
think the other thing that’s really happening specific to retail, it’s the industry I know the best, so it might apply to other industries, but from a retailing perspective, a lot of the retailers, since the pandemic, they’ve worked really hard on supply chain. They’ve really tried to protect themselves and become more agile and have this kind of ecosystems of supply chain. So you fast forward four years, five years, and now…

The retailers had to really deal with the tariffs and that even made them even more create more agility in the supply chain and be able to, you know, change their production facilities, change their sourcing, change logistics. And so they’ve become very good at just all this destruction that’s happening in an industry and a part of the industry supply chain that was not really super disruptive, but now I think they’ve become quite agile and

they’re being able to redo their supply chains and where they’re having things sourced and that type of thing. But I guess my big question is in that process of redoing this huge ecosystem, which quite frankly is not easy, it’s complex, it takes time. Do you think we’re going to be looking at giving other countries better, are they gonna become bigger trade partners as a result of this?

Dan (14:31.093)
That’s a great question. I agree with you that we’ve seen a lot of moves in the direction of greater agility.

That has taken some effort and it has been costly to do a lot of that reorientation. I think if you rewound five, six years and said, hey, would you rather none of this happened and you could keep on going with your supply chain as it was, a lot of companies would say, yes, that would save me a lot of time, money and headaches. But we are where we are and we do probably have more agile supply chains now and hopefully that’s an asset for the future. If we now ask which countries are going to be the beneficiaries of these changes,

It’s hard to say because all these trade deals are going to need to be renegotiated. And there’s sort of an arms race dynamic where if one country gets some deal first, then another country wants a similar deal. It may not shake out the same way as it did towards the end of last year. We’re going to see a whole new set of deals, which are what economists would call path dependent. It matters what order you actually negotiate these deals in. So we don’t know which countries are going to be the beneficiaries. Looking back,

We would have thought, OK, well, if the tariffs on China are very high, then maybe Vietnam is a substitute. And if that’s a lower tariff environment, then companies will shift imports from China to Vietnam. We could see similar things happening with India, Pakistan, Bangladesh, maybe. If India is under high tariffs and sanctions because they’re importing Russian oil, then maybe some of those other markets are getting some of that production. We did start to see some shifts.

And I think that the agility that you mentioned is going to help companies to do more of that in the future. But we just don’t know which are going to be the low tariff regimes right now.

Shelley E. Kohan (16:15.982)
That’s so interesting. one of my, always do like my five top retail trends every year. And one of them is that the new hottest job in retail is gonna be a geopolitical officer. Just to navigate everything you just talked about is so complex and it really requires a different way of thinking that retailers really have to look at differently how they’re managing all this, you know, political and tariff and trades. And so what advice do you have for retailers? I mean,

You know, we’re typically not really politically motivated. kind of, you know, we have our industry, we want to sell products, we want to make consumer lives better. But now I just feel like, you know, we’re kind of in this big mess and we’re being kind of taken to task to deal with everything that’s happening in this, you know, very difficult political landscape. So what advice do you have for retailers and brands?

Dan (17:12.639)
Well, you have to stay on top of the news, but you also have to take the news with a grain of salt. We know that this president and this administration can be fairly capricious.

For example, there was a political ad that ran only in Canada to which the president took umbrage and swore that he would impose a higher tariff on Canadian imports just because of that ad. The ad was withdrawn. I don’t know if the threat was ever serious, but something like that would definitely make your ears perk up and say, oh my, are we going to face a much higher tariff for Canada? And then in the end, it amounted to nothing. So you have to pay attention to what’s going on, but also take it with a grain of salt and wait to see what actually happens.

also know that the president is susceptible to certain forms of influence and companies that cozy up to him tend to get better deals and tend to have their interests protected. So if you’re a big enough company, then I guess it makes sense to do something like that if you really are putting your business above all. But if you’re not such a big company that’s going to get the ear of the White House and you’re sort of just trying to ride these waves, then you just have to be alert and you have to make sure that you have realistic expectations about how everything’s

going to shake out. If you want to hire a geopolitical consultant or a geo-economic consultant, it’s probably not a bad idea. Maybe I should hang out my own shingle for that.

Shelley E. Kohan (18:30.59)
You should definitely do that, Dan. You’d be great at that. But I think you said something really important. think, you know, unfortunately, I think it’s the small businesses and the mid-sized businesses that really are going to feel the crux of all this, everything that’s been happening.

Dan (18:45.779)
Yeah, I think that’s right. And they’re some of the ones that have the hardest time reorienting their supply chains, right, because they don’t necessarily have a huge research network that’s already identified the options that they might have in other countries. And they might not be big enough where they could just come in with a huge order that would immediately have producers jumping in different countries. They wouldn’t necessarily even have the middlemen, the intermediaries who would help them, middlemen and women,

to do business in those countries, they would have to line up the lawyers, accountants, whatever they needed. It’s not that easy for a small business, especially when those pathways haven’t already been established by some of the bigger players. So I really feel for them. And I think they’ve had a very difficult past 12 months, and it’s probably going to be pretty tough these next 12 months, too.

Shelley E. Kohan (19:35.88)
And they don’t they just don’t have the capabilities in-house and they don’t have the resources, know time money and manpower to fix a lot of the things that they would need to fix to try to overcome a lot of the terrorist ping-pong that’s happening

Dan (19:52.233)
Yeah, and some people say, well, OK, well, they should just buy more domestically produced goods then they should import less. And when that’s possible, tends to mean higher prices and they’ll have to pass those prices on to the consumer. They’re going to have to charge higher prices anyway because even the reorientation of the supply chain is costly. You know, the reason you’re doing it is because you

are facing a much higher tariff in one country. But the reason that you didn’t import from the second country in the first place was the prices were higher. So, you know, they are going to the second best option in many cases, and that means prices are going to have to go up.

Shelley E. Kohan (20:31.15)
Dan, do you have any closing thoughts you’d like to share?

Dan (20:35.881)
Well, I just have a hope that the policy uncertainty will finally settle down. As I said, I think the economy was really poised to grow this year. We were starting to see signs that the labor market was beginning to loosen up, which is the best possible news for the consumer. But it’s really now frozen again. And I hope that we can escape this situation in the next several months.

Shelley E. Kohan (21:00.46)
Well, thank you so much for coming on the Retail Unwrapped today. It’s great to have you. I hope you’ll come back and I’m really looking forward to your book.

Dan (21:09.407)
Thank you so much, and I hope next time we’ll have better news to discuss.

Shelley E. Kohan (21:13.344)
me too. Thank you, Dan.

Dan (21:16.201)
Take care.