Why have "Trump tariffs" not yet raised inflation in the United States? This explanation is gaining increasing acceptance

Despite the highest tariff barriers the United States has faced in nearly a century, the inflation surge that economists have widely feared has not materialized. An increasingly recognized explanation is that due to extensive exemptions and shifts in trade patterns, the effective tariff rates actually paid by importers are far lower than the officially published levels, thereby cushioning the direct impact on consumer prices.

Recent research provides data support for this view. According to an analysis by Barclays economists, the average tariff rate adjusted for import volume weighting was about 9% in May this year, significantly lower than the 12% previously estimated based on White House announcements. This finding reveals part of the reason for the resilience of the U.S. economy, namely that the actual impact of tariffs is milder than commonly believed.

This phenomenon also explains why the pace of consumer price increases has not been as rapid as some analysts expected. The impact of tariffs on inflation has long been a contentious topic, and Trump asserted this week that tariffs have not triggered inflation. However, despite the overall inflation picture being better than expected, prices for certain goods have risen, and the latest wholesale price index recorded the largest monthly increase in three years, indicating that underlying inflationary pressures still exist.

However, analysts believe that the current stability may be temporary. As existing tariff loopholes are closed and companies begin to pass on accumulated costs to consumers, the full impact of tariffs on prices may not yet have arrived, and the economy will face new tests in the coming months.

Exemption List Explains Inflation "Puzzle"

Barclays' research indicates that part of the reason inflation has not surged significantly is that a large number of imported goods have not actually been subject to tariffs. The bank's analysis of U.S. Census Bureau data shows that thanks to countless exemption clauses, only 48% of U.S. imports were actually subject to tariffs in June.

This exemption list is extensive, covering key goods such as pharmaceuticals, certain electronics, and semiconductors. Additionally, many imported goods from Canada and Mexico are exempt from what Trump termed "reciprocal tariffs." Furthermore, there are partial exemptions for goods containing at least 20% U.S.-made components. It is these exemption clauses that have allowed more than half of U.S. imports to enter duty-free, significantly lowering the overall effective tariff rate.

Importers' Shift and Inventory Adjustments

In addition to direct exemptions, adjustments in importer behavior have also helped to lower the total amount of tariffs actually paid. Economists at JP Morgan noted that due to importers shifting to countries with lower tariffs or sourcing from domestic producers, the actual tariff rate in June was lower than the headline averages (i.e., the officially published average rates).

The experience of Barry Roth, who imports used cars from Canada, corroborates this. He stated that before the tariffs took effect, dealers stockpiled inventory in large quantities to avoid costs, with his monthly import volume once soaring from 1,000 vehicles to nearly 1,500. Now, due to the 25% tariff on many cars from Canada, his monthly import volume has plummeted to 400 vehicles This behavior of importing in advance to avoid tariffs has led to a short-term decline in import data, but as inventory is consumed, import demand may rebound again. Barclays economist Mark Cus pointed out, "It is currently unclear whether it is possible to decouple so quickly from major suppliers."

Tariff Impact May Still Be Ahead

Analysts warn that the current low effective tax rate may not last. Barclays predicts that as existing loopholes are closed, the weighted average tariff rate may eventually rise from the current approximately 10% to around 15%, far higher than last year's 2.5%. Estimates from Yale University's policy research center, The Budget Lab, are even higher, suggesting that the effective average tariff currently faced by American consumers is 18.6%.

The White House has already stated that it will suspend the "minimum exemption" rule starting later this month, which previously allowed cargo packages valued under $800 to enter the U.S. duty-free.

Additionally, Trump has threatened to impose tariffs of up to 250% and 100% on pharmaceuticals and semiconductors, respectively. These potential measures mean that the greater impact of tariffs on the economy may still be forthcoming.

As importer Barry Roth stated, as dealer inventories run out, they will either pay tariffs or face the dilemma of having no cars to sell; in either case, price increases may occur. "It won't happen tomorrow or next week, but it will escalate gradually."

Companies Begin to Pass Costs to Consumers

As the outlook for tariff policies becomes clearer, more companies that previously held a wait-and-see attitude are indicating plans to pass on increased costs to customers in the coming months. Many companies were initially reluctant to raise prices because they did not want to frequently adjust prices due to the ongoing changes in tariff rates, which could alienate customers.

Bank of America economist Aditya Bhave stated, "Companies are taking strategic measures to raise their prices." Randy Carr from World Emblem is an example; his company imports uniform badges for U.S. law enforcement and emergency personnel. He revealed that the company initially absorbed over $1 million in costs to pay tariffs but did not raise prices.

Now, with a better grasp of the direction of the final tariff rates, his company will raise prices on badges manufactured in East Asia by 6% to 25% starting in September. "We feel that waiting any longer is pointless," he said. This shift indicates that consumers may soon feel the real weight of tariffs on their bills.

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk