When President Trump complained on Saturday that Walmart should “stop trying to blame tariffs” for looming price increases, many economists recalled the last time they heard a president rail against companies for raising prices.
It was last year, in fact, when President Joseph R. Biden Jr. cited “corporate greed” as the reason Americans were paying more for gas, food and rent, while deflecting criticism that his policies had worsened inflation.
And economists are generally no more persuaded of the accusation when a Republican leveled it than when a Democrat did.
“Fundamentally, what we’re seeing in both instances is that the president makes a policy mistake, that policy mistake leads to an increase in consumer prices and the president who made the policy mistake is blaming the businesses,” said Michael Strain, an economist at the right-leaning American Enterprise Institute.
In the case of Mr. Trump’s tariffs, which are set at 30 percent on Chinese imports until mid-August, the effects will reverberate across the economy, either pushing up prices for consumers or, if companies do absorb some of the costs, lowering profits for businesses. Those responses could drive inflation, slow growth and raise unemployment.
Yet while mainstream economists are generally in agreement that there is nothing unseemly about companies raising prices when their costs spike, that view is hardly universal outside the profession.
A variety of populist-minded thinkers across the political spectrum think there may be grounds for concern about price gouging, and that Mr. Trump wasn’t necessarily wrong to call out companies for raising prices.
“I’m not here to tell you whether he’s right about certain industries,” said Elizabeth Wilkins, the president of the Roosevelt Institute, a liberal think tank. “But the basic idea that companies have more pricing power than we believe that they did is something we should interrogate.”
Mr. Trump suggested that Walmart use its billions in profits from last year — “far more than expected,” he wrote on his platform Truth Social on Saturday — to cushion consumers against price increases.
But the size of a company’s profits have little effect on its decision to raise prices, said Chad Syverson, an economist at the University of Chicago. Most companies want to preserve their profits whether they are large or small, because failing to do so would incur the wrath of their owners or shareholders, some of whom are pension funds and small-time investors. They pass along price increases to consumers instead.
Pricing decisions come down to factors other than profitability, like how much competition companies face and how sensitive consumers are to price increases. If you splurge on a latte only now and then, you may balk when the coffee shop raises prices. If you can’t live without your daily caffeine and sugar hit, you may suck it up and pay the higher amount.
And if, in some cases, companies increase prices by even more than the jump in their costs, that doesn’t necessarily reflect nefarious behavior, said Alexander MacKay, an economist at the University of Virginia. It may reflect the fact that consumers are no longer as turned off by price increases.
This appeared to happen during the pandemic, when some companies raised prices by a small initial amount in response to their costs going up. Companies that saw little drop in demand often continued to raise their prices.
Jared Bernstein, who served as Mr. Biden’s top White House economist, said many consumers during the pandemic were less deterred than usual by price increases because they were flush from a series of government cash infusions.
But, Dr. Bernstein added, those idiosyncratic circumstances have largely disappeared, so firms are likely to be more restrained in raising prices in response to Mr. Trump’s tariffs as a way to bolster profits. He said he still expected them to pass along cost increases, however.
Populist critics of mainstream economics see companies’ pricing decisions much more cynically. Oren Cass, a former Republican policy aide, said in an email that a large company like Walmart had far more influence over its prices than it let on.
“If Walmart were to simply adopt a policy that ‘we will not change our prices in response to the tariffs,’ there would be some situations where suppliers ate the costs, some where suppliers shifted to other sources of supply to avoid the tariffs, and some where Walmart accepted lower margins,” said Mr. Cass, whose think tank, American Compass, pushes Republicans to adopt more worker-friendly policies.
Walmart argues that its options are still limited. In an interview with CNBC last week, Walmart’s chief financial officer, John David Rainey, said that the company is “well equipped” to navigate price increases of 2 or 3 percent but not a tariff of 30 percent, the current rate on goods from China. Mr. Rainey added that Walmart would in fact absorb some of the cost increases.
Nick Iacovella, executive vice president of the Coalition for a Prosperous America, which has advised the Biden and Trump administrations on efforts to expand domestic manufacturing, noted a dubious logic to price-setting by companies: An automaker will scream about the need to raise prices when costs increase, but when an automaker takes advantage of a trade deal to shift production to Mexico, it rarely passes the savings along to consumers.
“Can you tell me what car they lowered the price for when they saved all that money?” said Mr. Iacovella, a former Senate aide to Secretary of State Marco Rubio. “The answer is none.”
On the left, Ms. Wilkins of the Roosevelt Institute argued that large companies do not merely raise prices when their costs increase, or when shoppers become willing to pay more. She said companies sometimes exploit widespread concerns about inflation to actively manipulate prices.
In a competitive industry, she said, a company should be reluctant to announce a price increase, for fear that other companies would undercut it. But in a market with only a few actors, a large company might signal its intention to raise prices on an earnings call as a way to encourage other large companies to follow suit.
“It’s not explicit collusion, but you can kind of throw those one-sided invitations out there,” said Ms. Wilkins, a former chief of staff to Lina Khan, Mr. Biden’s head of the Federal Trade Commission, who considered looking into these practices.
Dr. MacKay, the University of Virginia economist, conceded that this sort of coordination was possible. He pointed to a recent study arguing that airline industry executives have effectively coordinated to reduce seats on competitive routes by telegraphing their intentions during earnings calls.
But Dr. MacKay wasn’t entirely convinced. “Executives need to make disclosures about what they’re doing as a public company,” he said. “Often when firms face common industrywide trends, they’re making similar decisions. So it’s hard to say conclusively.”
Noam Scheiber is a Times reporter covering white-collar workers, focusing on issues such as pay, artificial intelligence, downward mobility and discrimination. He has been a journalist for more than two decades.
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