A new perspective has emerged suggesting that U.S. inflation caused by tariffs on imports could actually help protect workers’ jobs.
Yahoo Finance reported on Thursday that investment bank Morgan Stanley predicted that workers may keep their jobs as long as product prices remain high, despite the current job market contraction and anticipated layoffs next year.
In a report, Morgan Stanley’s chief U.S. economist Michael T. Gapen suggested that if U.S. companies continue to raise prices next year as they did this year, they may avoid large-scale layoffs.
Earlier this year, U.S. companies did not increase prices despite the pressure from tariff-induced cost increases, choosing instead to freeze new hiring.
However, they began raising product prices in the third and fourth quarters.
Morgan Stanley believes that if this trend persists, companies might sidestep major layoffs in the coming year.
Gapen explained that companies don’t expect the Trump administration to impose additional tariffs in the near term. With inflation stabilizing and corporate profits largely recovering, the outlook suggests firms can avoid layoffs.
Morgan Stanley economists also noted that with U.S. midterm elections approaching next year, the Trump administration is unlikely to impose more tariffs, though price hikes are expected to continue.
The bank projects that existing tariffs will push the core inflation index to 3% by early next year.
Gapen pointed out that U.S. consumer prices from June through September were clearly affected by tariffs. He expected companies to keep raising prices to recoup tariff-related losses without significantly eroding their customer base.
However, Morgan Stanley stressed that whether the price increase can prevent major layoffs hinges on consumers’ capacity to bear the extra costs.
They also highlighted that economic uncertainty limits spending, and it is unclear at what price point consumer spending might start to decline.
The analysts predicted that if companies can’t raise prices due to consumer resistance and lose market share, they might resort to layoffs to cut labor costs.
