Many retailers are stocking up on holiday-season merchandise now, in the midst of ongoing trade policy changes. (Joe Raedle / Getty Images)
The trade war is far from over, and Americans could still pay a big price, according to economists and analysts.
Even after the U.S. and China agreed to halt levies on each other for 90 days, U.S. households’ net purchasing power is still set to shrink by an average $2,800 a year, the Yale Budget Lab estimated Monday.
The researchers’ current estimate is lower than the $4,900 hit they forecast based on the state of play on April 15, but it still reflects the sting of a nearly 18% average effective tariff rate — the highest in more than 90 years.
President Donald Trump has delayed, watered down or lowered many of his severest import taxes in recent weeks. He partially walked back a slate of global duties days after unveiling it last month, offered some reprieve on his 25% auto tariffs, and temporarily slashed duties on China to 30% after hiking them 145%. The administration unveiled the outlines of a trade pact with the United Kingdom last week and said it had held “productive” talks with Beijing officials over the weekend that are set to continue.
Businesses are “sitting there making a very targeted choice, not probably based [solely] on their own economics but their economics and their competitors,” said Andy West, a senior partner at the consulting firm McKinsey who advises CEOs on corporate strategy and finance. “You’re going to have to react,” he said.
The CEO of Barbie maker Mattel said last week that higher prices are on the table but expanding domestic manufacturing isn’t.
“That’s OK, let him go, and we’ll put a 100% tariff on his toys, and he won’t sell one toy in the United States, and that’s their biggest market,” Trump responded in Oval Office remarks, during which he also defended his reprieve on British luxury car brand Rolls-Royce.
Big questions remain around how the global trade order will look a year from now, making it difficult to draw solid conclusions from recent data about the state of the economy or where it’s headed next.
“There’s been a pretty substantial misalignment between the soft data — which intends to capture sentiment or confidence, or lack thereof — and essentially the hard data, which measures the activity in the economy," Mark Hamrick, senior economic analyst at Bankrate, told NBC News this month.
He noted that the latest employment data looked stronger than analysts had forecast, but many cautioned it was already a dated snapshot of the labor market. Even a better-than-expected inflation report Tuesday failed to jolt investors, with major stock indexes little changed despite a cooldown in consumer prices.
Seema Shah, chief strategist at Principal Asset Management, warned clients Tuesday of “prolonged inflation uncertainty,” saying in a note that “a clear read” on the direction prices are heading “won’t be visible for several months yet.” Analysts at Capital Economics all but waved away the April inflation numbers, saying that “it is likely to be a different story this month as tariff effects start to feed through” — echoing warnings that have greeted economic data releases for weeks.
For many industries, the trade war has already affected supply chains operating on monthslong lead times. Retailers are stocking up on holiday-season items now. Fireworks sellers recently told NBC News that tariff plans had scrambled their last wave of shipments for July Fourth. Global trade data shows manufacturing demand plunged amid U.S.-China trade tensions in recent weeks, with experts warning the recent tariff truce isn’t likely to cool anxieties that have already crashed into shipping volumes.
Global trade data shows manufacturing demand has fallen amid U.S.-China trade tensions. (Liz Dufour / The Enquirer / USA Today Network)
After a big push to buy foreign products in the first quarter to get ahead of tariffs, many businesses and consumers are expected to trim their purchasing later this year. Small businesses’ outlooks slid again in April, the National Federation of Independent Business (NFIB) reported Tuesday, and many entrepreneurs have been racing to blunt the expected impact. Decisions made weeks or months ago to pre-empt tariffs — including those that were subsequently revised or have yet to be implemented — frequently exact a cost to operations.
“One day we’re having tariffs, the next day we’re not having tariffs, and the next day we’re having tariffs,” Victoria Park, a pet supply shop owner in Atlanta, told NBC News late last month. “That’s very, very hard for small businesses to navigate when you’re constantly changing things.”
As consumers eye the economy with growing pessimism, many companies are bracing for sales to slow. The NFIB said April was “the fourth consecutive month real sales expectations declined after surging from recession levels after the election.”
So far, the Trump administration hasn’t veered from its optimistic messaging even as officials rewrite the fine print of their economic agenda. The president has repeatedly rejected concerns about prices, despite warning of short-term economic pain after campaigning on a vow to deliver immediate relief.
Treasury Secretary Scott Bessent has argued that Trump is creating “strategic uncertainty” in his pursuit of trade deals. “The aperture of uncertainty will be narrowing and, as we start moving forward announcing deals, then there will be certainty,” he said in late April.
The White House continues to describe tariffs as a multipurpose tool, from a means of juicing federal revenue — which early data shows has happened, rising to a record $16 billion in April — to restoring manufacturing, something experts in many tariff-hit industries expect to be a harder lift.
Trump has indicated that any such difficulties are both worthwhile and surmountable. “The Golden Age of America will soon be upon us,” he posted Monday on social media.
This article was originally published on NBCNews.com
