Modeling the Tariff Pass‑Through as a First‑Order Lag
As a sort of physics nerd, I do love looking as systems a little differently. So as I am looking at the impending Tariffs, it seems the question everyone is asking is how long will it take for them to take effect and what will it look like?
Unfortunately, that would take Nostradamus to predict. What I can predict is a sort of an absorption rate per product... a sort of lag rate that uses currently known variables to make time estimates based on the chain of events. Essentially, when a Railroad engine starts rolling, how long before the very last car starts moving.
This equation is really only a guide to help you if you're in supply chain logistics and it can be made much better. I opted for very simple parameters by focusing on time which isn't normally done in this type of environment. I asked AI to explain it to the muggles... that's what I call you people... Sorry
Dear Muggles,
We just did some fancy math to answer a simple question: How long does it take for a tariff to fully affect prices? You might think that if the government slaps a 10% tariff on imports, prices go up immediately. But that’s not how markets work. Businesses have contracts, warehouses full of inventory, and strategies to delay passing the cost to consumers. Some markets adjust quickly (like tech), while others take years (like fuel and agriculture).
To figure this out, we used a well-known mathematical formula that describes how things gradually change over time—like how coffee cools down or how medicine spreads in your body. The equation we used predicts how prices slowly rise after a tariff is introduced, instead of jumping up overnight. It even gives us a simple way to estimate how long it takes for the full price increase to kick in. For example, if a market adjusts fast, the full impact might hit in 9 months, but for slower markets, it could take 2 years.
Did we invent a new equation? Not exactly. This formula has been around for a long time in different fields, but we applied it in a new way—to tariffs. It’s like using an old recipe to make a brand-new dish. Economists use much more complicated models to study tariffs, but this approach gives a quick and easy estimate of when you’ll start feeling the price hikes at the store.
In short, the next time you hear about new tariffs, don’t expect prices to jump overnight. Instead, think of it like a slow-rising tide—it takes time, but once it’s in full effect, there’s no escaping the higher costs. Now, go forth and impress your friends with this newfound knowledge!
Sincerely, Your Friendly Wizard of Math and Markets 🧙♂️
AI is such a nerd.
Anyway. I wrote a much longer blog about it with AI that explains how to use the formula. Again, if you aren't in logistics, I'm not certain why you would care. Also, you can definitely make it better and tune it to your particular product pipeline and it should be able to help you answer those uncomfortable questions... though let's face it, it's just a guess as well.
https://qmichaellewis.blogspot.com/2025/03/modeling-tariff-passthrough-as.html
(Interesting enough... it does appear as this Tariff idea might just be an indirect tax on U.S. Consumers. I must be getting that wrong, Republicans would never create new taxes!)
= new reply since forum marked as read
sincerely,
Mr. Muggles
