Trump’s massive import taxes haven’t done much economic damage — yet

 

For months, American consumers and businesses have been hearing that President Trump’s massive import taxes – tariffs – would drive up prices and hurt the U.S. economy. But the latest economic reports don’t match the doom and gloom: Inflation actually eased last month, and hiring was solid in April.

For now, the disconnect has businesses and consumers struggling to reconcile what they were told to expect, what the numbers say, and what they are seeing on the ground. Trump and his supporters are quick to point out that the trade wars of his first term didn’t translate into higher overall inflation across the economy.

So is it time to breathe easy?

Not yet, economists say. Trump’s tariffs are still huge – the highest since the Great Depression of the 1930s. They’re unpredictable: The president frequently announces tariffs only to suspend them days later and to conjure up new ones. And they are still working their way through the system.

“We had a good jobs report. We had a cool inflation report, and that’s great,” said Ernie Tedeschi, director of economics at Yale University’s Budget Lab. “But that should not give us comfort about what next month will be, particularly on inflation.’’

Walmart, for example, warned its customers last week that prices will be going up for everything from clothing to car seats. Prices for some items, like bananas, have already increased.

True, the truce with China last Monday dramatically reduced the risks to the U.S. economy, and U.S. and global stock markets rallied last week in relief. The United States dropped the import tax that Trump angrily imposed on China – America’s third-biggest source of imports – from an eye-watering 145% to 30%; Beijing cut its retaliatory tariffs from 125% to 10%. Economists at JPMorgan Chase, who had forecast last month that the China tariffs made a recession likely, don’t expect one now.

Trump’s tariffs are the highest since the Great Depression

But even with the lower levies on China, the Yale Budget Lab reported that the cost of Trump’s trade war will be high. Climbing prices will reduce the purchasing power of the average household by $2,800. Shoe prices will rise 15% and clothing prices 14%. The tariffs will shave 0.7 percentage points off U.S. economic growth this year and increase the unemployment rate, now a low 4.2%, by nearly 0.4 percentage points.

Trump has imposed 10% taxes on imports from almost every country on earth. He’s also imposed 25% duties on cars, aluminum, steel, and many imports from Canada and Mexico.

The Yale Budget Lab estimates that Trump policies will push the average U.S. tariff rate to 17.8%, the highest since 1934 and up from around 2.5% when Trump took office. (Other economists put his tariff rate at 14% to 15%.) During Trump’s first term, the average tariff rose just 1 percentage point despite all the headlines generated by trade policies. Now, according to the budget lab, they are rising 15 percentage points.

And the tariffs have only begun to bite. In April, the import tax revenues collected by U.S. Customs and Border Protection came to a tariff rate of just 4.5%, a fraction of what’s coming, Tedeschi said. That’s partly because of delays in rolling out the tariffs, including technical glitches that prevented customs agents from collecting them for a couple of weeks.

The full impact has also been delayed because companies beat the clock by bringing in foreign goods before Trump’s tariffs took effect. Retailers and importers had also largely halted shipments of shoes, clothes, toys, and other items due to new tariffs, but many are resuming imports from China.

Tedeschi, who was chief economist at President Joe Biden’s Council of Economic Advisers, also notes that it just takes time for tariffs to translate into higher prices. During Trump’s first term, his January 2018 levies on foreign washing machines didn’t yield more expensive appliances until April that year. Still, a Federal Reserve study this month found that duties Trump imposed in 2018 and 2019 meant higher prices as soon as two months later, suggesting consumers could start paying more in June.

Consumers are less willing to accept higher prices

Things have changed from the first time Trump was in the White House, when companies essentially passed along the entire cost of his tariffs. Now, American consumers, still scarred by the burst of inflation that followed the COVID-19 pandemic, may be more reluctant to accept higher prices.

“Consumers weren’t inflation exhausted in 2018 the way that they are now,’’ Tedeschi said. Surveys by Federal Reserve banks in Atlanta and Dallas have found that most companies would eat at least some of the tariff costs this time around. And one reason that the Labor Department’s producer price index fell in April was that retailers and wholesalers reported lower profit margins, a sign that they may have been absorbing some of the tariff cost.

Trump, who has long insisted that foreign countries and not U.S. companies or consumers pay his tariffs, on Saturday lashed out at Walmart for saying it would raise prices. On social media, he demanded that the giant retailer “ EAT THE TARIFFS, and do not charge valued customers anything. I’ll be watching, and so will your customers!!!’’

The economic damage doesn’t just come from the cost of tariffs, but from the erratic way the president imposes them. For instance, the 145% China tariffs were just suspended for 90 days. Likewise, Trump has paused the high taxes he slapped last month on imports from countries with which the United States runs trade deficits. Could those levies come back?

Consumers are clearly fearful that the duties will boost prices, as consumer confidence surveys have plummeted since Trump began ramping up his tariff threats in February. The Conference Board’s consumer confidence index has fallen for five straight months to its lowest level since the depths of the pandemic in May 2020.

Costlier coffee and Christmas wreathes are coming

Snowy Owl Coffee Roasters in Sandwich, Massachusetts, which imports beans from Brazil, Nicaragua, Burundi and other countries, is only now planning to raise its prices this week to cover the cost of the 10% tariffs. It plans to add 25 cents to 35 cents to the price for each cup.

“Tariffs are increasing costs and they’re adding to a lot of uncertainty around the potential for a downturn,” said Shayna Ferullo, 44, co-owner of Snowy Owl. “We are looking closely at the year ahead to consolidate and operate really, really tightly.”

Ferullo will also have to pay much more than she budgeted to renovate her shop in Brewster, Massachusetts -- one of her three retail locations -- because the contractor has raised his estimate, partly due to tariffs on building supplies. She has already elected to not fill one job after an employee left and is looking at ways automation could help reduce her labor costs, though she hasn’t laid off any of her 35 employees.

Jared Hendricks, CEO of Village Lighting Co., last month halted shipments of supplies he gets from China – holiday storage bags, wreaths, holiday lights, and garlands. Now that the U.S. and China have reached a truce, he’s trying to get the products to the United States in time for the holidays.

He estimates that it will take 10 to 20 days from China to the West Coast ports via ship and another 20 to 40 days for the goods to go through U.S. Customs, then travel via Union Pacific Railways to his company in Utah. Given all the expected delays, Hendricks said he’s worried that his holiday décor won’t arrive by Sept. 1 when it should start appearing in stores.

Meanwhile, he’s figuring out how to foot a $1 million bill for the tariffs. He’s hoping he can cover the cost by raising prices 10% to 15%.

In the meantime, he’s trying to secure a loan against his house to pay for the levies.

“We are moving forward,’’ he said, “but at great cost, personal risk, and weariness.”

Donald Trump can still cut deals and issue orders. But the U.S. president’s power has waned since he imposed sky-high tariffs in April, only to backtrack. In particular, the balance of power between the United States and China, which should be critical to his promise to “Make America Great Again”, has shifted in Beijing’s favour.

Trump deploys his power in three main ways. The first is by giving commands. He spews out executive orders and makes pronouncements on social media, expecting people to snap to attention. The second is as a card-player. As he told Ukrainian President Volodymyr Zelenskiy in their infamous meeting in the White House in February: “you don’t have the cards right now”. The president often seems to think he can cut good deals because he holds the best hand. The third is by taunting opponents. That was the approach Trump took with former Canadian Prime Minister Justin Trudeau, mocking him as the country’s “governor”.

At the apogee of Trump’s power, he faced little opposition. A blizzard of activity, combined with the fact that his Republican Party controls both houses of Congress, gave the impression that his second administration would be all-conquering. There was little point for opponents in resisting either the president or key lieutenants such as Elon Musk, the world’s richest man, who was given the job of slashing government spending.

A chart depicting executive orders signed by President Donald Trump versus his predecessors.

The opposition Democratic Party was in disarray. Critics in the Republican Party and business kept quiet for fear that Trump would turn on them. Targets such as Columbia University and law firm Paul Weiss made concessions in an attempt to persuade him to back off.

SOURCES OF POWER

One of Trump’s sources of power is the perception that he is a winner. His trip to Saudi Arabia, Qatar, opens new tab and the United Arab Emirates last week, when he announced deals worth more than $1 trillion, burnished these credentials. His personal relationships with Gulf leaders also underlined his charisma - another source of his power.

In recent weeks, however, Trump has also given the impression that he will back off when faced with signs of trouble. He delayed bespoke tariffs on trading partners after financial markets tumbled, suggesting a low threshold for economic pain. He struck a more emollient tone towards Canada after new Prime Minister Mark Carney hit back with tariffs and tough rhetoric.

The most important retreat, however, was last week’s decision to slash U.S. tariffs, which opens new tab on Chinese imports for at least 90 days without any significant concessions from Beijing. Trump may have feared that an enduring standoff could fuel stagflation. The U.S. ceasefire with Houthis also suggests a less belligerent approach. Although the Yemeni fighters agreed to stop attacking U.S. ships in the Red Sea, they continued to launch missiles at Israel, one of Washington’s closest allies.

In all these cases, Trump seems to have overestimated his hand and underestimated the cards held by his opponents. Others may draw the lesson that he does not have the stomach for long fights. The president is also facing more resistance at home. Harvard University and some law firms have stood up to him. Opponents have won a series of legal cases against his administration’s actions. Meanwhile, Musk’s chainsaw approach to government and Health Secretary Robert F. Kennedy Jr.'s handling of a measles outbreak are unpopular. Although Trump’s overall popularity ratings have recently risen after an initial drop, Republicans will need public support to keep control of Congress after next year’s midterm elections. Without that, the president’s power will further erode.

A line chart depicting the S&P 500 Index's performance since President Donald Trump's inauguration in January 2025.

Republicans in Congress are also finding their voice. Several senators, including the Republican Senate Majority Leader John Thune, have questioned Trump’s desire to accept a $400 million airplane from Qatar. Many are backing tougher sanctions against Russia, making it harder for the president to swing back to supporting the Kremlin. Meanwhile, Trump is about to face a big test of his power as he tries to get the divided Republican Party in Congress to back massive tax cuts.

ZERO-SUM THINKING

Even some of Trump’s successes may not be quite as good as they look. For example, while he got the United Kingdom to agree to a one-sided trade pact, this will boost export opportunities for U.S. companies by only $5 billion, according to the administration - a mere 0.02% of U.S. national output.

Meanwhile, a deal to help the UAE build a massive artificial intelligence campus has raised concerns from some in the U.S. government that the advanced chips might find their way to China. Moreover, commitments to invest do not necessarily translate into actual investments, says Simon Evenett, professor of geopolitics and strategy at IMD.

The U.S. president’s success in getting European allies such as Germany, open new tab to ramp up defence spending could also have a sting in the tail. While his threat to stop supporting countries that spend too little on defence could cut the burden on U.S. taxpayers, Trump has shattered the trust of American allies. Europe will try to become less dependent on Washington as it boosts its own defences. That could ultimately weaken the United States in its superpower rivalry with China, as it probably needs allies to prevail.

One problem with Trump’s dominant modes for exercising power is that they look at the world through the prism of winners and losers. Such zero-sum thinking is only one way of deploying power, says Steven Lukes, opens new tab, a political scientist who has studied power. Trump could, of course, adopt more of a win-win approach, which would focus on identifying mutually advantageous relationships with allies. This is what his predecessor, Joe Biden, was trying to do as part of his strategy for containing China.

But that would require the 78-year-old to learn new ways of deploying power. Maybe he can do this. But, if not, MAGA risks becoming "Make America Weak Again".

CBS News CEO Wendy McMahon said Monday that she is resigning after four years, the latest fallout at the network as its parent company considers settling a lawsuit with President Donald Trump over a “60 Minutes” interview with his former political opponent.

McMahon, who has led both the network news division and news for the CBS-owned stations, said in an email message to staff that “it’s become clear that the company and I do not agree on the path forward. It’s time to move on and for this organization to move forward with new leadership.”

McMahon has made clear she opposes settling with Trump — just like “60 Minutes” executive producer Bill Owens, who quit last month.

Trump has sued CBS, alleging it edited an interview with 2024 Democratic opponent Kamala Harris last fall to benefit her. CBS News has denied that. CBS’ parent company, Paramount Global, is in talks to potentially settle Trump’s lawsuit. At the same time, Paramount Global is seeking administrative approval of a merger with Skydance Media.

George Cheeks, co-CEO of Paramount and head of the CBS network, said McMahon’s top deputies, CBS News president Tom Cibrowski and CBS Stations president Jennifer Mitchell, will report directly to him.

McMahon, in her note, said that “the past few months have been challenging.”

“I have spent the last few months shoring up our businesses and making sure the right leaders are in place, and I have no doubt they will continue to set the standard,” she said.

In addition to the tussle with Trump, Paramount’s controlling shareholder, Shari Redstone, has expressed unhappiness over some network coverage of Israel’s war in Gaza, including a “60 Minutes” piece this winter. Paramount began supervising “60 Minutes” stories in new ways, including asking former CBS News President Susan Zirinsky to look over some of its stories before they aired.

That extra layer contributed to Owens’ resignation. One of the show’s correspondents, Scott Pelley, said on the air that “none of us is happy” about the changes.

CBS News is also trying to establish the new anchor team of John Dickerson and Maurice DuBois at its flagship “CBS Evening News” broadcast amid ratings troubles.

In his note to staff members, Cheeks praised McMahon for expanding local news at CBS stations and improving their competitive positions, along with improving the network’s digital offerings.

Despite the internal tensions, the “60 Minutes” broadcast has done several notably tough stories on the Trump administration, and it has drawn the ire of the president. He attacked the show after one episode in April. “Almost every week, 60 Minutes ... mentions the name ‘TRUMP’ in a derogatory and defamatory way,” the president said on social media.

On Sunday’s season finale of “60 Minutes,” a story that had been scheduled and publicly announced about cutbacks at the Internal Revenue Service was not aired. A spokeswoman said it was because on Friday, CBS learned that IRS leadership had told senior staff that it had decided to call some 7,000 probationary employees back to work.

CBS said it would continue to report on the details and broadcast the story sometime in the future.

A Trump settlement with Paramount has precedence. The Walt Disney Co. decided in December to pay $15 million to end a Trump libel lawsuit against ABC News over a statement made by the network’s George Stephanopoulos regarding a sexual assault case against Trump.

The new administration has been battling with the media on several fronts, including:

—Engaging in a court fight with The Associated Press over curtailing access because the agency has not followed Trump’s wishes to rename the Gulf of Mexico.

—Making efforts to shut down government-run news services like the Voice of America.

—Cutting funding to public broadcasting.