Low U.S. inflation is obscuring how Americans are already paying up for President Donald Trump’s trade war with China, foreshadowing further pain as the administration boosts tariffs and readies additional levies.
The higher costs are already flowing through the supply chain and on to the U.S. consumer, whose purchases make up nearly three quarters of the economy. The reality contradicts Trump’s assertion that “there is no reason” for Americans to pay the tariffs, as he tweeted Monday.
The price of items on store shelves in seven tariff-hit categories, including furniture, appliances and auto parts, jumped 1.6% through April since the first round of tariffs in July. But the overall index for all goods excluding food and energy has weakened, showing a lack of price pressure in other areas untouched by the trade war.
“The costs of the tariffs have fallen entirely on U.S. businesses and households,” Goldman Sachs Group Inc. economists wrote in a recent note, where they made similar calculations about the levies’ impact on inflation.
Inflation pressures are poised to build further after the administration increased levies on Chinese goods to 25% and prepared potential charges on about $300 billion of remaining items.
This has implications for Federal Reserve policy makers, who have pledged patience on interest rates amid economic crosscurrents. Analysts expect higher prices to boost inflation, with many forecasting added gains of about 0.1 to 0.3 percentage point, but the levies also may discourage some consumer spending, weakening gross domestic product.
Economists so far aren’t convinced trade policy will spur the Fed to act. Almost a quarter said in a Bloomberg survey this week that new tariffs on all remaining imports would have no discernible effect on Fed policy, while almost half saw the central bank as more likely to cut interest rates if levies are added on the full slate of Chinese imports.
Meanwhile, Trump has sought to enlist the Fed in his trade fight, urging policy makers Tuesday to “match” what he said Beijing would do to offset the hardship caused by U.S. tariffs.
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