President Trump’s Import Tariffs Officially Take Effect Amid Concerns of Mild Stagflation in the U.S. Economy
The import tariffs imposed by U.S. President Donald Trump officially took effect at 12 PM Taiwan time yesterday (7th), including a 20% “temporary equivalent tariff” on Taiwan, marking the beginning of a new landscape in global trade competition. However, at the same time, the U.S. economy appears to be entering a narrow and rugged path: persistent inflation, slowing growth, and a cooling job market seem to be bringing it closer to what economists refer to as “mild stagflation.”
Investors, businesses, and policymakers are all seeking answers: what direction will the U.S. economy take next?
The Real Picture of Slowing Growth
Recent models from multiple institutions depict a nearly identical curve: the real GDP growth rate for 2025 is expected to be around 1.0%, significantly lower than the 2.8% forecast for 2024. At the same time, the inflation rate is predicted to exceed 3%, while the unemployment rate may hover between 4% and 4.5%, enough to cool the labor market but not sufficient to exert strong downward pressure on wages.
This combination places decision-makers in a difficult position: tightening monetary policy could stifle the already weak growth momentum, while loosening it could push prices even higher.
The Tariff Effect: Igniting Price Pressure
The primary driver pushing the economy to the brink is Trump’s bold tariff plan. Cost increases are first reflected on the consumer side. Analysis indicates that after businesses pass on import costs to consumers, the Consumer Price Index could rise by 1.8 percentage points. On the other hand, cost pressures squeeze profits, leading to a simultaneous decline in corporate investment and hiring willingness.
RBC Capital Markets estimates that the number of jobs could decrease by 500,000 by the end of 2025, dragging GDP down by 0.5 percentage points annually. While the manufacturing sector is temporarily supported by protective barriers, agriculture, construction, and retail still face the dual blow of demand contraction.
Data Shows Warning Signs
According to public data, the personal consumption expenditure (PCE) price index in the U.S. rose by 2.6% year-on-year in June, higher than expected, while the services price index surged to 69.9%, reaching a new high since October 2022. Former Federal Reserve economist Skanda Amarnath stated:
“The downward trend in inflation is no longer clear, and risks are shifting back to the upside.”
The labor market also shows signs of fatigue. According to the latest data released by the Labor Department last night (7th), as of the week ending July 26, the number of people continuing to claim unemployment benefits increased by 38,000, reaching 1.97 million, the highest level since November 2021.
However, for now, the data shows that companies have not initiated large-scale layoffs; instead, the time for unemployed individuals to return to work is getting longer, indicating that employment momentum is rapidly cooling. A series of signals sketch a picture of weakening growth momentum and increasing price stickiness.
Policy Dilemmas and Investment Directions
Faced with intertwined pressures, market consensus leans towards the Federal Reserve possibly implementing the long-awaited interest rate cut in September, but this also signals concerns about the U.S. falling into an economic recession.
Overall, the U.S. in 2025 is undergoing a trial period of “mild stagflation.” Tariff policies have ignited price pressures while simultaneously weakening growth and employment. The key in the coming quarters will be whether prices can decline, whether businesses can adapt to the new cost structure, and whether decision-makers can find a balance between tightening and loosening… this test has just begun, so everyone should hold on tight.
Related Reports
- Trump’s Semiconductor Tax Hits 100%, What Can the Cryptocurrency Sector Earn?
- Trump’s 100% Semiconductor Tariff Hits Hard, TSMC’s $200 Billion Investment “Avoids Crisis” with a 5% Opening Surge
- Trump Announces “Important Statement” to be Released at Midnight on 8/7, Are Semiconductor Tariffs Coming?