A new 10% global tariff rate took effect today, introduced by the administration after the US Supreme Court struck down its previous, broader tariff policies. The President is expected to further discuss the reasoning behind this new tariff push in the upcoming State of the Union address.
According to a chief economist from a major financial research firm, the overall economic impact of this change should be fairly mild. Initially, the proposed 10% rate would have been a positive development, effectively lowering the average tariff burden. However, a subsequent increase to 15% means the new regime is now very similar to the previous policies. It’s estimated to cover about 80% of the goods affected before the court ruling, putting the economic landscape modestly better, but roughly “back to where we started.”
If companies were to pass on the savings from the slightly lower rates to consumers, it could result in about a 10 basis point reduction in inflation. However, the economist expressed skepticism that this would actually happen. “Prices generally don’t fall in a good environment,” she noted. They typically only drop when consumers become more selective and pull back on spending.
Instead, the current environment may see an increase in spending due to recent fiscal stimulus measures, making it unlikely for companies to cut prices. What might occur, however, are marketing strategies like “tariff headline sales.” This is because many large corporations are expected to receive substantial refunds—estimated at around $150 billion—for tariffs previously paid that were later ruled illegal. Companies might use this as a promotional opportunity, but a genuine reduction in prices is considered unrealistic.
Looking more broadly at inflation and monetary policy, the near-term focus is likely to be on the labor market. While inflation data is not expected to be the primary driver of immediate policy changes, a significant weakening in the job market could potentially lead to additional interest rate cuts, though this is not the economist’s base case prediction.
