What have tariffs really done to the US economy?

After his return to the White House in January, President Donald Trump wasted no time in implementing his trade policies, including raising tariffs on countries like Mexico, Canada, and China. The move sparked concerns among economists and businesses about potential economic damage. Trump then targeted industries like steel, aluminum, and cars, and in April, he announced a wave of new taxes on goods from various countries around the world, which he dubbed “Liberation Day”.

The impact of these tariffs was immediately felt in the stock market, with the S&P 500 index dropping approximately 12% over the course of a week. However, once Trump decided to scale back his plans and impose a 10% tariff instead of higher rates, the market rebounded. Currently, the S&P 500 index is up about 6% for the year, signaling a recovery in the market.

Despite the overall rebound, tariff-vulnerable sectors like retailers and car companies are still facing challenges. As the deadline for trade talks approaches, there is uncertainty about the future direction of tariffs. The White House has indicated that the deadline may not be critical, leaving room for potential negotiations or the imposition of new tariffs.

In terms of trade, the US saw a surge in imports earlier in the year followed by a sharp decline in April and May. Overall, imports of goods in the first five months of the year were up 17% compared to the same period last year. The future of trade will depend on whether Trump extends the tariff pause or reverts to more aggressive measures.

Regarding prices, the impact of tariffs on consumer spending is not yet fully realized. While imported goods account for only about 11% of consumer spending in the US, the recent inflation data shows a modest increase in consumer prices. However, certain items like toys have seen significant price hikes, and many goods facing higher tariffs have not yet hit the shelves. Economists expect consumers to eventually bear the brunt of these tariffs.

Consumer spending in the US has started to slow, with retail sales declining for two consecutive months. Overall consumer spending grew at a slower rate in the first quarter of the year and unexpectedly slipped in May. Despite these challenges, analysts believe the economy can avoid a recession as long as the job market remains stable. Unemployment remains low at 4.2%, with job creation continuing at a steady pace.

In conclusion, the US economy is facing uncertainty due to Trump’s trade policies, leading to a wait-and-see approach from businesses. The economy is currently in a stall mode, driven by uncertainty and policy instability. While a pickup in growth is unlikely, the extent of economic softening remains to be seen. The impact of tariffs on various sectors and consumer spending will continue to unfold as negotiations progress.