{"id":21118,"date":"2025-07-24T20:44:08","date_gmt":"2025-07-24T20:44:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/21118\/"},"modified":"2025-07-24T20:44:08","modified_gmt":"2025-07-24T20:44:08","slug":"why-tariffs-havent-caused-runaway-inflation-yet","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/21118\/","title":{"rendered":"Why tariffs haven\u2019t caused runaway inflation \u2014 yet"},"content":{"rendered":"

Initial predictions about runaway inflation<\/a> and empty shelves<\/a> after President Donald Trump announced his sweeping tariffs in April have yet to materialize.<\/p>\n

Some in the Trump administration have taken that as a sign that he should double down on tariffs. Earlier this month, Treasury Secretary Scott Bessent posted on X<\/a> that the \u201cinflation propagandists have been proven wrong.\u201d White House press secretary Karoline Leavitt said in a statement<\/a> that \u201cPresident Trump is stabilizing inflation and the \u2018panicans\u2019 continue to be wrong about tariffs raising prices.\u201d<\/p>\n

Trump himself crowed<\/a> on his social network Truth Social: \u201cConsumer Prices LOW,\u201d he wrote, urging the Federal Reserve to bring down interest rates in response.<\/p>\n

Their declarations of success, however, are likely premature.<\/p>\n

The first indication that inflation might be ticking up came in June, when the consumer price index increased by 2.7 percent<\/a>, up from 2.4 percent the previous month. The prices of food, housing, and used cars increased at even higher rates.<\/p>\n

And they may not be done climbing. Economists told Vox that the upward trend is likely to continue, so long as the tariffs remain in effect. Companies have taken steps to ride out the uncertainty that tariffs cause, but before the end of the year, they will face untenable financial pressure to raise prices, absent major changes in US trade policy.<\/p>\n

\u201cBy the time we get to the end of August, you\u2019ll kind of look back and it will appear that directionally, the people who said tariffs would increase prices over the summer were right,\u201d said Daniel Hornung, a senior fellow at MIT and former deputy director of the National Economic Council under the Biden administration.<\/p>\n

Why tariffs increase prices<\/p>\n

Trump\u2019s tariffs are predicated on a faulty assumption that countries with a trade imbalance with the US \u2014 in which they export more to the US than they import from it \u2014 are taking advantage of America.<\/p>\n

However, such trade imbalances are not inherently bad. They don\u2019t hurt US economic growth<\/a>, and they don\u2019t correlate with higher American unemployment<\/a>.<\/p>\n

Trump\u2019s rationale ignores why those imbalances might exist in the first place. One factor is the population profile of countries that trade with the US: Vietnam, for example, exports more than it imports from the US because it is relatively poor<\/a> and cannot afford to buy many American-made goods.<\/p>\n

Americans\u2019 consumption tendencies also lead to trade imbalances. Compared to other Western countries, Americans are a younger and faster-growing population, one that saves less and spends more on imported goods relative to its counterparts overseas.<\/p>\n

There is also high foreign investment in the US, in part driven by the fact that the dollar is the world reserve currency and by the perception that American real estate and government debt are attractive investments.<\/p>\n

Trump misunderstands these dynamics, and economists argue that tariffs won\u2019t change them<\/a>.<\/p>\n

The president, nevertheless, believes that tariffs can rectify these imbalances by spurring a renaissance of domestic manufacturing, causing the US to import less, export more, and create more jobs. But that\u2019s also unlikely.<\/p>\n

The economy runs on confidence in the future. Businesses make plans months or years in advance hoping that their investments will eventually pay dividends. Consumers, too, are more likely to spend on goods and services that these businesses sell when they feel good about their prospects. Their spending helps support economic growth and a solid job market.<\/p>\n

The uncertainty about whether and when Trump\u2019s tariffs will roll out, and at what cost, has given businesses little reason to make massive new investments in US factories spanning years into the future. Such investment could be a risky bet when it\u2019s not clear if Trump will back down on the tariffs \u2014 or be forced to do so as part of a pending court case<\/a> \u2014 in a matter of months.<\/p>\n

In the meantime, tariffs will increase costs for producers and retailers, which they eventually have to pass on to US consumers if they wish to maintain their profit margins.<\/p>\n

Why hasn\u2019t inflation increased dramatically yet?<\/p>\n

So far, companies have managed to avoid drastic price increases for a few reasons.<\/p>\n

For one, the rollout of tariffs against many major US trading partners has been delayed until August 1<\/a>. That includes a 35 percent tariff on Canada, a 50 percent tariff on Brazil, a 25 percent tariff on South Korea, and a 30 percent tariff on the European Union and Mexico.<\/p>\n

The Trump administration has been trying to negotiate deals with all of them before the August 1 deadline. On Wednesday, Japan announced a deal<\/a> with the Trump administration that allowed it to avert higher tariff rates, but it will still face a 15 percent tariff on all exports to the US.<\/p>\n

Notably, the US has also reached a temporary trade deal with China that lowered tariffs from 145 percent to 30 percent. That deal expires August 12, but Bessent has suggested that it is likely to be extended<\/a>.<\/p>\n

Collecting tariffs has yet to begin or has only recently begun for many countries, so the tariffs\u2019 impact on prices has lagged \u2014 but it\u2019s still on the horizon. Preston Caldwell<\/a>, chief US economist for Morningstar, said that he predicts that inflation will peak not in 2025, but rather in 2026, as that impact spreads through the economy.<\/p>\n

And the effect will be acute, given that even countries that have secured deals with the US face tariffs that would have once been unthinkably high. A flat 10 percent tariff on all imports was considered a nightmare scenario<\/a> before Trump took office.<\/p>\n

\u201cI don\u2019t think predictions of inflation were wrong,\u201d said Matt Colyar, an economist for Moody\u2019s Analytics. \u201cI just think it\u2019s a matter of timing.\u201d<\/p>\n

Companies have been reluctant to raise prices sharply and potentially drive away customers who were already struggling to keep up with inflation in the post-pandemic era. The Yale Budget Lab has projected that the tariffs could cost Americans an average $2,300<\/a> per household.<\/p>\n

But some retailers also made preparations to mitigate the initial impact of tariffs on their businesses. Businesses that can afford it have been stockpiling inventory for months<\/a> in an attempt to keep prices low and ride out the tariffs, hoping that Trump will change course. But their inventory will only last so long.<\/p>\n

\u201cCompanies have started paying tariffs on their imported goods, but as far as the goods that are being sold in stores right now, those are primarily being drawn from the inventory of goods that were brought in before the tariffs,\u201d Caldwell said. \u201cSo most companies are still not really having to recognize the loss of tariffs yet to a great degree.\u201d<\/p>\n

There are some categories of goods that are likely to see higher price increases than others. That includes electronics, appliances, apparel, and furniture \u2014 durable goods that have a large import share, MIT\u2019s Hornung said. Between February and June, the price of major appliances already increased by 5.7 percent<\/a>, and furniture and bedding prices rose by 1.7 percent<\/a>.<\/p>\n

\u201cThat\u2019s different from what we\u2019re seeing in categories that are not particularly import-sensitive, like the service sector. You have to look closely, but you are really seeing a divergence now between tariff-sensitive and non-tariff-sensitive categories,\u201d Hornung said.<\/p>\n

Fruit and coffee are some staple items that have a large share of imports that could also see price increases.<\/p>\n

By the time back-to-school shopping starts, Americans might start to notice the impact on their pocketbooks. Unlike big-ticket items, like cars, shoppers might not be able to put off purchases of smaller essentials.<\/p>\n

\u201cPeople don\u2019t put off shoe purchases for years and years and years,\u201d Hornung said. \u201cThat\u2019s an example of one where you\u2019ll both probably get the pricing effect, and you won\u2019t see slowing demand sufficient to offset any of it.\u201d<\/p>\n

Colyar said he\u2019s also watching tariffs on copper imports.<\/p>\n

\u201cCopper is in everything. It\u2019s in electronic components. It\u2019s fundamental to housing,\u201d he said. \u201cIt\u2019s an interesting bellwether for a pain point that people have very clearly communicated.\u201d<\/p>\n

Companies are biding their time, hoping that they can get a reprieve from tariffs in the next few months. But they\u2019re staring into a future where these kinds of changes become inevitable.<\/p>\n

\u201cThe more that it becomes clear that tariffs are here for at least the foreseeable future, the more that they are going to have to eventually adjust to this new reality, which will entail increasing their prices,\u201d Caldwell said.<\/p>\n","protected":false},"excerpt":{"rendered":"Initial predictions about runaway inflation and empty shelves after President Donald Trump announced his sweeping tariffs in April…\n","protected":false},"author":2,"featured_media":21119,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[84,13535,141,1294,2222,305,229,6635,56,54,55,13536],"class_list":["post-21118","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-business-finance","tag-donald-trump","tag-economy","tag-money","tag-policy","tag-politics","tag-trump-administration","tag-uk","tag-united-kingdom","tag-unitedkingdom","tag-world-politics"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/21118","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=21118"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/21118\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/21119"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=21118"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=21118"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=21118"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}