>Companies that bring in goods from abroad now face an unpalatable choice: either they can eat the tariffs and accept lower profits, or they can pass the additional costs on to consumers.
>So far, they have mostly chosen the first option. Bosses are attempting to wait out the president. Why alienate customers with higher prices if Mr Trump might change his mind and render the exercise pointless? Even in the latest consumer-price data, which still show inflation a little above the Federal Reserve’s target of 2%, it is difficult to spot a tariff impact.
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>Oddly, though, tariffs may be pushing down prices via another mechanism—by taking a toll on the economy. The Liberation Day drama crushed consumer confidence, possibly softening demand. Until recently, this has been evident only in “soft” data (surveys and the like). Now signs of it are starting to appear in “hard” data, too. A recent release showed that household spending fell month-to-month in May. Employment figures for June were strong, but bolstered by government hiring, especially of teachers. Those for the private sector were lower than expected.
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>All the same, a worse slowdown does not necessarily mean a recession. Tariffs are colliding with an economy that is, by any historical or international standard, extraordinarily dynamic. It has been growing at a consistent 2-3% a year since 2022. As a consequence, America is one of the few rich countries that might be able to shoulder even a big hit to growth and still dodge recession. The additional stimulus in Mr Trump’s “Big, Beautiful Bill” is also front-loaded, meaning that it will provide a boost this year and next, which could help obscure the impact of tariffs (even if it also creates an inflationary mess for the Fed to handle). All of this suggests a future in which economists endlessly debate the true impact of the tariffs, while the American public barely notices them, despite having been left poorer. Not a triumph for Mr Trump—but not a disaster either.
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>Companies that bring in goods from abroad now face an unpalatable choice: either they can eat the tariffs and accept lower profits, or they can pass the additional costs on to consumers.
>So far, they have mostly chosen the first option. Bosses are attempting to wait out the president. Why alienate customers with higher prices if Mr Trump might change his mind and render the exercise pointless? Even in the latest consumer-price data, which still show inflation a little above the Federal Reserve’s target of 2%, it is difficult to spot a tariff impact.
…
>Oddly, though, tariffs may be pushing down prices via another mechanism—by taking a toll on the economy. The Liberation Day drama crushed consumer confidence, possibly softening demand. Until recently, this has been evident only in “soft” data (surveys and the like). Now signs of it are starting to appear in “hard” data, too. A recent release showed that household spending fell month-to-month in May. Employment figures for June were strong, but bolstered by government hiring, especially of teachers. Those for the private sector were lower than expected.
…
>All the same, a worse slowdown does not necessarily mean a recession. Tariffs are colliding with an economy that is, by any historical or international standard, extraordinarily dynamic. It has been growing at a consistent 2-3% a year since 2022. As a consequence, America is one of the few rich countries that might be able to shoulder even a big hit to growth and still dodge recession. The additional stimulus in Mr Trump’s “Big, Beautiful Bill” is also front-loaded, meaning that it will provide a boost this year and next, which could help obscure the impact of tariffs (even if it also creates an inflationary mess for the Fed to handle). All of this suggests a future in which economists endlessly debate the true impact of the tariffs, while the American public barely notices them, despite having been left poorer. Not a triumph for Mr Trump—but not a disaster either.
Special providence etc