President Donald Trump’s tariffs—which are being challenged in federal court—make this environment even more precarious. Retailers and economists have pointed to the increased prices that these policies would cause for consumers as a major concern. Days after that easing was announced, the administration’s steel and aluminum tariffs position remains absolutist. On top of that, they refuse to lift their tariffs on autos and other commodities from Canada and Mexico.
In May, the United States and China reached a trade agreement. This deal largely rolled back the retaliatory tariffs imposed by both countries on one another. Soon thereafter the White House hit pause on much of Trump’s “Liberation Day” tariffs. Originally, these tariffs had been aimed at a pretty broad swath of countries. The pact had one primary goal – to stabilize US trade relations. Controversies still persist on whether or not tariffs will increase domestic inflation.
In contrast to a targeted use of tariffs, right now a wide 10% tariff blanket virtually all imports. With the exclusion of semiconductors, pharmaceuticals, and some other goods. Though relatively short-lived, when President Trump rolled back some of these extreme tariffs, the move helped ease the financial burden on importers. Yet, thanks to recent federal court rulings, many of these tariffs continue to languish in legal limbo. Specifically, Trump has relaxed sector-specific tariffs that target the auto industry and reduced duties on some goods from Mexico and Canada.
In addition to the economic pain these tariff policies are causing, Federal Reserve Chairman Jerome Powell has expressed concern about their broader economic effects. He cautioned that permanent tariffs could lead to “stagflation,” a condition in which increasing prices go hand in hand with sluggish economic development. With inflation starting to rear its head, Powell said,
“For now, it does seem like a fairly clear decision for us to wait and see.” – Jerome Powell
The inflation rate for the year ending in April was 2.3%, the lowest rate since 2021. Our latest analysis suggests that inflation probably ticked up again in May. The 2.4% increase in prices forecast year-on-year. The U.S. Consumer Price Index that was released on Wednesday corroborated this increase, reporting a spike in inflation to 2.4%.
At its latest meeting in May, the Federal Reserve chose to maintain interest rates steady amid these fluctuating economic indicators. The central bank has taken an extremely dovish turn. It tracks the shifting landscape driven by tariff policies and related impacts on consumer prices.
Needless to say, retailers are scrambling to adjust to this unprecedented economic whipsawing. That blight is being eclipsed by the debate over tariffs that’s affecting the economic prospects of consumers and industries all over the country. The effects of Trump’s trade policies will likely remain a focal point in discussions about inflation and economic growth in the coming months.
