Effects of Tariffs on Inflation: Impacts and Considerations
The effects of Trump’s tariffs have not yet materialized as expected, causing some to rethink the traditional view that tariffs are universally bad. Economists are reconsidering the impact of tariffs, recognizing that they can be useful in specific circumstances, such as protecting vital industries or responding to unfair trade practices. However, high or broad tariffs can do more harm than good in highly interconnected global economies. Despite the debate over the benefits of tariffs, the U.S. has historically championed free trade, which aims to enlarge the global economic pie by maximizing output and efficiency through specialization based on comparative advantage. The imposition of blanket tariffs on imports, such as a proposed 20% tariff, is expected to lead to a one-time increase in the overall price level of around 0.7%. This increase is due to the impact on consumer prices and the relatively small percentage of imports in the US GDP. The effect on inflation for 2025 and 2026 is estimated to be less than 0.7% due to reciprocal and targeted tariffs rather than blanket tariffs. The market anticipates core inflation to peak about 6 months from now, potentially rising by 1.2%, with some attributing the increase to tariffs.
Read more at 1. “Stocks Surge as Tech Giants Report Strong Earnings” – CNBC
Tech stocks rebounded as companies like Apple, Amazon, and Google parent Alphabet reported better-than-expected earnings, driving the market higher.
2. “Unemployment Rate Drops to 4.8%, Lowest Since Pandemic Began” – Reuters
The latest job report showed a significant decrease in the unemployment rate, reaching its lowest point since the start of the COVID-19 pandemic.
3. “Federal Reserve Keeps Interest Rates Unchanged” – Wall Street Journal
The Federal Reserve decided to maintain its current interest rates, citing the need for continued economic recovery before making any adjustments.
4. “Oil Prices Reach 3-Year High Amid Supply Concerns” – Investing.com
Oil prices surged to a three-year high due to ongoing supply disruptions and concerns about potential shortages in the market.: When Do Tariffs Hit Inflation – and By How Much?